Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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16. Imagine that you are holding 6,400 shares of stock, currently selling at $40 per share. You
are ready to sell the shares but would prefer to put off the sale until next year due to tax reasons.
If you continue to hold the shares until January, however, you face the risk that the stock will
drop in value before year-end. You decide to use a collar to limit downside risk without laying
out a good deal of additional funds. January call options with a strike price of $45 are selling at
$6, and January puts with a strike price of $35 are selling at $8.
a. What will be the value of your portfolio on the January expiration date if the stock price
ends up at $29?
b. What will be the value of your portfolio on the January expiration date if the stock price
is $49?
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Transcribed Image Text:16. Imagine that you are holding 6,400 shares of stock, currently selling at $40 per share. You are ready to sell the shares but would prefer to put off the sale until next year due to tax reasons. If you continue to hold the shares until January, however, you face the risk that the stock will drop in value before year-end. You decide to use a collar to limit downside risk without laying out a good deal of additional funds. January call options with a strike price of $45 are selling at $6, and January puts with a strike price of $35 are selling at $8. a. What will be the value of your portfolio on the January expiration date if the stock price ends up at $29? b. What will be the value of your portfolio on the January expiration date if the stock price is $49?
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