554 Managed bookmarks Corporate Essentials Fede, Business Cands Laseehip 1 Fdele

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554 Managed bookmarks Corporate Essentials Fede, Business Cands Laseehip 1 Fdelene Bridge oes g Acmn Card connect Bodie, Essentials of Invesments, 10e-Prebult Instructor Course: Bodle, Essentials of Investments, 0e Prebuilt Instructor Course INANC Kwang Chen r 15 Homework instructions help Question 1 (of 8) Save&Ext; Submat 10.00 points 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 reasons. If you continue to hold the shares until January, however, you face the risk that the stock without laying out a good deal of additional funds. January call options with a strike price of $45 are selling at s6, and January puts with a the value of your portfolio in January net of the proceeds rom the options) i the stock price ends up at S29 S40 S497 what wil the value of your porti io be f yo hold the shares? off the sale unbl next year due to tax strike price of $35 are seling at $8 What will be will drop in value before year-end. You decide to use a colar to limit downside risk Price Portfolio Value If collar is used If you continued to hold the shares References eBook & Resources

Explanation / Answer

If you continue to hold the shares:

Share price of 29: value=29*6400=185600

Share price of 40: value=40*6400=256000

Share price of 49: value=49*6400=313600

If collar is used:

Share price of 29: value=185600+6400*(max(35-29,0)-8-max(29-45,0)+6)=211200

Share price of 40: value=256000+6400*(max(35-40,0)-8-max(40-45,0)+6)=243200

Share price of 49: value=313600+6400*(max(35-49,0)-8-max(49-45,0)+6)=275200

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