Draw the total payoff diagram for your overall strategy

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Reference no: EM132758650

Question - You buy a share of Stock A (today) at a price of $50 a share. You intend to hold it for four months. Having bought the share, you would like to protect your downside while participating completely on the upside. Specifically, you would like to ensure that your investment does not fall below $50. Both a call and a put are available (on Stock A) with an exercise price of $50. The options are European and expire in four months.

a) What strategy would you employ to meet your objectives?

b) Use a table to show the total payoff on your overall strategy (or portfolio) at the end of your investment horizon (in four months).

c) Draw the total payoff diagram for your overall strategy (or portfolio) at the end of your investment horizon (in four months). Label your axes and mark them with appropriate values where necessary.

Reference no: EM132758650

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