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The price of a stock is $40. The price of a one-year European put option on the stock with a strike price of $30 is quoted as $7 and the price of a one-year European call option on the stock with a strike price of $50 is quoted as $5. Suppose that an investor buys 100 shares, shorts 100 call options, and buys 100 put options. a. Construct a payoff and profit/loss table b. Draw a diagram illustrating how the investor’s payoff and profit or loss at expiation.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92163539

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