What will pats portfolio be worth one year from today

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Reference no: EM133615956

Problem: In the spirit of the upcoming cold season, both Pat and Imp hold a portfolio of each of the following two assets: 1. An American call option on one share of EggNog Co. (Symbol: ENOG), a maker of the drink called eggnog. The options have exercise price $100 and will expire one year from today. The call options are currently in the money. 2. $100 in cash EggNog management has a long-standing policy of never paying dividends to shareholders - they reinvest all profits into the firm to produce "even better, creamier eggnog". Question a. Being impatient (and perhaps also afraid that her call might end up out-of-the-money), Imp decides to exercise her call option right away to obtain the underlying stock. Let ST denote the price of an ENOG share one year from today. What will Imp's portfolio be worth one year from today? b. Patient Pat decides not to exercise his American call option till the expiration date. Instead, he invests his $100 in cash for one year at the riskless rate of 10%. Again, let ST denote the price of an ENOG share one year from today. What will Pat's portfolio be worth one year from today?

Reference no: EM133615956

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