A current price of stock is $40. At the end of six months (0.5 year), the price would change to either $50 (=40*1.25) or $32 (=40*0.8). A call option with the stock has an exercise price of $35 with 6 months maturity. A riskless security had 8% return. If you would like to set up a riskless portfolio, how many stocks needs to be purchased with a short position in one call option?

Answer rating: 100% (QA)

To set up a riskless portfolio we need to create a portfolio that eliminates any possibility of gain ... View the full answer