The common stock of the XYZ Co. has been trading in a narrow range around $40 per share for months, and option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for How can you create a position involving a put, a call, and riskless lending that would have the same payoff str O Buy the call, sell the put; lend the present value of $40. Sell the call, buy the put; lend the present value of $40. Buy the call, sell the put; borrow the present value of $40. O Sell the call, buy the put; borrow the present value of $40.
The common stock of the XYZ Co. has been trading in a narrow range around $40 per share for months, and option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for How can you create a position involving a put, a call, and riskless lending that would have the same payoff str O Buy the call, sell the put; lend the present value of $40. Sell the call, buy the put; lend the present value of $40. Buy the call, sell the put; borrow the present value of $40. O Sell the call, buy the put; borrow the present value of $40.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![The common stock of the XYZ Co. has been trading in a narrow range around $40 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put
option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for $4.
How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration?
O Buy the call, sell the put; lend the present value of $40.
O Sell the call, buy the put; lend the present value of $40.
O Buy the call, sell the put; borrow the present value of $40.
O Sell the call, buy the put; borrow the present value of $40.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7111bd9f-157b-49ea-822e-a545513e6e93%2Fac5661b8-9530-4a0d-adb3-c6f1d4152da9%2Fpzfrew_processed.png&w=3840&q=75)
Transcribed Image Text:The common stock of the XYZ Co. has been trading in a narrow range around $40 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put
option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for $4.
How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration?
O Buy the call, sell the put; lend the present value of $40.
O Sell the call, buy the put; lend the present value of $40.
O Buy the call, sell the put; borrow the present value of $40.
O Sell the call, buy the put; borrow the present value of $40.
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