An investor owns 65,000 shares of Silicon Valley Bank currently trading at $70 per share. Based on
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An investor owns 65,000 shares of Silicon Valley Bank currently trading at $70 per share. Based on research, there is a risk that the shares can fall significantly. The investor wants to hedge part of the loss in case this occurs and decides to use put options. The investor can buy put options that expire in 6 months with a strike price of $60 that currently cost $4 per contract (1 contract is worth 100 shares). a) If the investor hedges the position and the price falls to $20 per share in 6 months what is the investor's loss? (5 points) b) What is the loss if the price falls to $20 per share in 6 months and the position is not hedged with put contracts? (5 points)
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