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Question
The common stock of the Avalon Corporation has been trading in a narrow range around $40 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for $4.
How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration?
A. Buy the call, sell the put; lend the present value of $40.
B. Sell the call, buy the put; lend the present value of $40.
C. Buy the call, sell the put; borrow the present value of $40.
D. Sell the call, buy the put; borrow the present value of $40.
Answer
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Related questions
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Which of the following does not approximate the performance of a buy-and-hold portfolio strategy?
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B. A price-weighted index
C. A value-weighted index
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Q:
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Q:
The asset universe is the _____________________.
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Q:
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Q:
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C. younger workers
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Q:
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Q:
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Q:
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Q:
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Q:
You manage a $15 million hedge fund portfolio with beta = 1.2 and alpha = 2% per quarter. Assume the risk-free rate is 2% per quarter and the current value of the S&P 500 Index is 1,200. You want to exploit the positive alpha, but you are afraid that the stock market may fall and you want to hedge your portfolio by selling 3-month S&P 500 future contracts. The S&P contract multiplier is $250.
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A. 0
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D. The answer cannot be determined from the information given.