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Consider stock with ticker symbol XYZ which is currently priced at 100 per share. The continuously compounded risk free rate is 3%. Natalie sells a one year put with strike 95 for 3.50 and shorts one share of XYZ. After 6 months the put that Julie sold is priced at 4.00 and the stock costs 97 per share. At this point Natalie closes her position.

(a) What is Natalie’s profit assuming that no dividends were paid during the six month period?

(b) Natalie considered buying a 1 year call with strike 95 at the time she created her position. How much would this call have cost?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92762323

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