You are given: (i) An investor short-sells a nondividend-paying stock that has a current price of 44
Question:
You are given:
(i) An investor short-sells a nondividend-paying stock that has a current price of 44 per share.
(ii) This investor also writes a collar on this stock consisting of a 40-strike European put option and a 50-strike European call option. Both options expire in one year.
(iii) The prices of the options on this stock are:
(iv) The continuously compounded risk-free interest rate is 5%.
(v) Assume there are no transaction costs.
Calculate the maximum profit for the overall position at expiration.
(A) 2.61
(B) 3.37
(C) 4.79
(D) 5.21
(E) 7.39
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C The written collar consists of a short 40strike put and a long 50strike call The i...View the full answer
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