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You have accumulated 800 shares of company stock because of a generous employee stock ownership plan. Today's share price is $44.50 . You use a collar to lock-in the value 8 months from now of today's stock holdings. The collar takes a long position on 800 put options with strike of 50 and per unit option price of $8.75 . Also you take a short position on 800 call options with strike of 60 and per unit option price of $3.50 . Which is the most accurate statement about the valuation effects of the collar?

a. The best-case outcome is that in 8 months the stocks become worth $40000

b. The worst-case outcome is that in 8 months the stocks become worth $48000

c. The initial cash flow from entering the collar today is a cash outflow of $4200

d. Two choices, B and C, are correct

e. The three A-B-C choices are all correct.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92424450

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