In order to take out a loan, you are required to put up some type of...

In order to take out a loan, you are required to put up some type of collateral. You decide to offer 1,000 shares of your ZG Corp. stock which is valued at $100 per share. You are concerned that the stock price will increase to $125 before you repay the loan and the lender will sell your shares of stock for a profit. How could you manage this risk using a financial derivative?

(Would you purchase a put or call option? If you they profit off of the shares wouldn't the loan repayment be forgiven because the share of stock exceeds the loan amount of $1M)

Also this is for Risk Management.

Expert Solution

In order to take out a loan, you are required to put up some type of collateral. You decide to offer 1,000 shares of your ZG Corp. stock which is valued at $100 per share

ekkarill92 answered 1 year ago

In order to take out a loan, you are required to put up some type of collateral. You decide to offer 1,000 shares of your ZG Corp

In order to take out a loan, you are required to put up some type of collateral. You decide to offer 1,000 shares of your ZG Corp. stock which is valued at $100 per share. You are concerned that the stock price will increase to $125 before you repay the loan and the lender will sell your shares of stock for a profit. How could you manage this risk using a financial derivative?

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