Look at Figure 23.9, which shows the possible future payoffs in July 2018 from a particular package
Question:
Look at Figure 23.9, which shows the possible future payoffs in July 2018 from a particular package of investments in Amazon options. This package of investments is called a ?butterfly? by option buffs.
a. What package of investments would provide you with this set of payoffs?
b. How much would the package have cost you in January 2018?
c. Would it have made sense to hold this package if you thought that the price of Amazon stock was unlikely to change much?
Explration Date Exercise Price Call Price Put Price $ 31.10 $1,200 $132.70 April 2018 70.10 1,300 73.20 1,400 33.00 134.20 July 2018 1,200 161.70 53.55 1,300 104.00 96.00 1,400 156.05 62.55 January 2019 88.05 1,200 210.00 155.35 1,300 133.25 1,400 112.00 190.00 $100 $1,200 $1,300 $1,400 Amazon stock price In July Portfolio value
Step by Step Answer:
a Buy the 1200 exercise call Sell two ...View the full answer
Fundamentals of Corporate Finance
ISBN: 978-1260566093
10th edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus
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Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.
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