Suppose that Mr. Colleoni borrows the present value of $100, buys a six-month put option on stock

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Suppose that Mr. Colleoni borrows the present value of $100, buys a six-month put option on stock Y with an exercise price of $150, and sells a six-month put option on Y with an exercise price of $50.

(a) Draw a position diagram showing the payoffs when the options expire.

(b) Suggest two other combinations of loans, options, and the underlying stock that would give Mr. Colleoni the same payoffs.

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Principles of Corporate Finance

ISBN: 978-0072869460

7th edition

Authors: Richard A. Brealey, Stewart C. Myers

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Question Posted: Jun 09, 2011 05:31 AM

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Suppose that Mr. Colleoni borrows the present value of $100, buys a six-month put option on stock

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a The payoffs at expiration for the two options are shown in the following position diagr...View the full answer

Principles of Corporate Finance

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