please answer 18 and 19 Canvas Question 18&19 are based on the tollowing intorma
ID: 2656200 • Letter: P
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please answer 18 and 19
Canvas Question 18&19 are based on the tollowing intormation Suppose you are contemplating buying a house for $160,000. Your current wealth is $140.000 and you are unwilling to risk losing more than $20.000. A collar is established by (1) purchasing 2,000 shares of stock currently selling at $70 per share (2) purchasing 2,000 put options with exercise price $60 and (3) writing 2.000 calls with exercise price $80. Now, suppose at the option expiration, share price is $75 what is your payoff for the collar? o $150,000 S160.000 ? $140.000 $120.000 D | Question 19 1 pts Question 18 & 19 are based on the following information: Suppose you are contemplating buying a house for $160,000. Your current wealth is $140,000 and you are unwilling to risk losing more than $20,000. A collar is established by (1) purchasing 2.000 shares of stock currently selling at $70 per share (2) purchasing 2.000 put options with exercise price $60 and (3) writing 2.000 calls with exercise price $80. Now, suppose at the option expiration, share price is $75 what is your payoff for the collar? If the share price is $85, what would be the payoff for the collar? O $150.000 $160,000 $140.000Explanation / Answer
Answer :-
Case(1) Buy Shares = 2000*70 = 140000
Sell shares at expiry = 2000*75 = 150000
therefore profit is of 10000
Case (2) Take a put option of EP $60 of 2000 Shares
At Expiry :- The CMP is $75
As CMP > EP so we do not exercise There fore no gain
Case (3) Selling Call option at EP $80
At Expiry :- The CMP is $75
As CMP < EP so Call buyer do not exercise so no loss to call seller
Now there fore total profit from these three is 10000
Old Balance is 140000
Therefore now total Payoff is 150000
Therefore the correct answer is (a)
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