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A has a current spot price of $40. Assume the risk-free rate is 5%. Over the...

A has a current spot price of $40. Assume the risk-free rate is 5%. Over the next year, A could either move up to $64 (+60%) or move down to $25 (-37.5%).

1. Draw a single payoff diagram for an investor who buys the call and sells the put; both have strikes of $45. Add a second line incorporating the net premium.

2. A person buys two calls and sells one put. At what price for A will they break even.

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Expert Solution

ANSWER IN THE IMAGE((YELLOW HIGHLIGHTED). FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

2.1.

jeff jeffy answered 2 years ago
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