Compute the corresponding final payoff

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Question: Suppose that $1, 000 is invested in European call options on a stock with current price S(0) = 60 dollars. The options expire after 6 months with strike price X = 40 dollars. Assume that σ = 30%, r = 8%, and the expected logarithmic return on stock is 12%. Compute VaR after 6 months at 95% confidence level. Find the final wealth if the stock price grows at the expected rate. Find the stock price level that will be exceeded with 5% probability and compute the corresponding final payoff.

Reference no: EM131637942

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