You purchased a share of non-dividend paying stock at 25 and it has now appreciated to 45.

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You purchased a share of non-dividend paying stock at 25 and it has now appreciated to 45. You observe that a 3-month 35-strike European call on the stock is priced at 13 and the effective risk-free interest rate is 5% per year.

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How do you lock in a sale price of at least 35 for the stock three months from now and how much does it cost?

Related Book For answer-question

Fundamentals of Corporate Finance

ISBN: 978-0132148238

2nd edition

Authors: Berk, DeMarzo, Harford

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Posted Date: Feb 23, 2022 10:35 AM

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You purchased a share of non-dividend paying stock at 25 and it has now appreciated to 45.

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To lock in the sale price of a share at 35 the investor will be required to enter into an option con... View the full answer

Fundamentals of Corporate Finance

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