Reference no: EM132070259
1. Graph the value of your portfolio as a function of the relevant stock price. Graph for stock prices between 50 and 100.
You own (are long) a call with an exercise price of 70 and a put at 64.
You are short a call at 90, and long a put at 75.
Short a call at 85, long a put at 89, and long one share of the stock.
Long a call at 75, short a put at 75, short a share of stock.
2. A U.S. firm has sold an Italian firm €1,000,000 worth of product. In one year the U.S. firm gets paid. To hedge, the U.S. firm bought put options on the euro with a strike price of $1.65. They paid an option premium $0.01 per euro. If at maturity, the exchange rate is $1.60. Assume zero interest rate.
A) the firm will realize $1,660,000 on the sale net of the cost of hedging.
B) the firm will realize $1,590,000 on the sale net of the cost of hedging.
C) the firm will realize $1,640,000 on the sale net of the cost of hedging.
D) none of the options
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: Graph the value of your portfolio as a function of the relevant stock price. Graph for stock prices between 50 and 100.
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