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Find the difference in expected cash flow

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Question - You are given one-year stock options with an exercise price of $30. The current stock price is $30, so the options are at-the-money. Without hedging, the stock price at year-end will either be $28 or $38 with equal probability. Hedging shrinks the range of prices between $30 and $36. Find the difference in expected cash flow under the two scenarios.

A) $1

B) $4

C) $10

D) $6

Reference no: EM132142156

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