Question: (Mark Value = 4) 8. A trader shorts one share of a stock index for 45 and buys a 60-strike European call option on that

(Mark Value = 4)

8. A trader shorts one share of a stock index for 45 and buys a 60-strike European call option on that stock that expires in 2 years for 5. Assume the annual effective risk-free interest rate is 3%. The stock index increases to 85 after 2 years.

Calculate the profit on your combined position, and determine an alternative name for this combined position.

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