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  3. (a) you have $10,000, which you want to invest in

(a) You have $10,000, which you want to invest in XYZ stock and options. The...

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(a) You have $10,000, which you want to invest in XYZ stock and options. The stock price of XYZ is So = $40, and the price of a six-month call on XYZ with strike X = $40 is Co = $1. Consider the following three portfolios: (1) Invest all your wealth in XYZ stock; (2) invest all your wealth in call options on XYZ stock; (3) buy 100 calls and put the rest of your wealth in a bank-account that earns a six-month riskfree return of Rs = 1%. (a) You have $10,000, which you want to invest in XYZ stock and options. The stock price of XYZ is So = $40, and the price of a six-month call on XYZ with strike X = $40 is Co = $1. Consider the following three portfolios: (1) Invest all your wealth in XYZ stock; (2) invest all your wealth in call options on XYZ stock; (3) buy 100 calls and put the rest of your wealth in a bank-account that earns a six-month riskfree return of Rs = 1%

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