Concept problem in each case examined in this chapter and, Ask an Expert

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(Concept Problem) In each case examined in this chapter and in the preceding problems, we did not account for the interest on funds invested. One useful way to observe the effect of interest is to look at a conversion or a reverse conversion. Evaluate the August 165 puts and calls, and recommend a conversion or a reverse conversion. Determine the profit from the transaction if the options are held to expiration. Make sure that the profit properly accounts for the interest that accrues over the holding period.

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