In one month's time Stock Z can take one of two possible values, where the values are defined as either being in an up state or a down state. A European call option on Stock Z, currently trading for £1.66, has 1 month to maturity and has payoffs in one month's time of £4 in the up state and £0 in the down state. A European put option on Stock Z has 1 month to maturity and has payoffs in one month's time of £0 in the up state and £36 in the down state. Both options have an exercise price of £100. 

Stock Z does not pay any dividends over the next year and the risk-free rate for the next month is 1%. An investor has a current portfolio that consists of being long 10 of the aforementioned European call options on Stock Z, long 8 of the aforementioned European put options on Stock Z, long 15 shares of Stock Z and also long 5 default risk-free government zero coupon bonds with a par value of £100 and a maturity date of one month. 

What is value today of the investor's portfolio?

Answer rating: 100% (QA)

1 Option Values Call Option Since the call option only has value in the up state its present value c... View the full answer