Consider a certain butterfly spread on American International Group stock (AIG): this is a portfolio that is long one call at $50, long one call at S70, and short 2 calls at $60. Assume expiration of all options is at the same time t = T. (a) Graph the payoff of this portfolio at expiration T as a function of the stock price ST of AIG. (b) If today the calls cost $13.10, $5.00, and $1.00 for the strikes at 50, 60, and 70, respectively, what will be the profit or loss (PnL) from buying this spread if the stock turns out to be trading at $55 at time T? at S35? Assume the risk-free rate is 0%.
Consider a certain butterfly spread on American International Group stock (AIG): this is a portfolio that is long one call at $50, long one call at S70, and short 2 calls at $60. Assume expiration of all options is at the same time t = T. (a) Graph the payoff of this portfolio at expiration T as a function of the stock price ST of AIG. (b) If today the calls cost $13.10, $5.00, and $1.00 for the strikes at 50, 60, and 70, respectively, what will be the profit or loss (PnL) from buying this spread if the stock turns out to be trading at $55 at time T? at S35? Assume the risk-free rate is 0%.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter2: Risk And Return: Part I
Section: Chapter Questions
Problem 4P: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market...
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Consider a certain butterfly spread on American International Group stock (AIG): this is a portfolio that is long one call at $50, long one call at $70, and short 2 calls at $60. Assume expiration of all options s at the same timet=T. (@) Graph the payoff of this portfolio at expiration T as a function of the stock price ST of AIG. (b) If today the calls cost $13.10, $5.00, and $1.00 for the strikes at 50, 60, and 70, respectively, what will be the profit or loss (PnL) from buying this spread if the stock turns out to be trading at S5 at time T2 at $35? Assume the risk-free rate is 0%,
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