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How do you fully hedge your position with stock and bond

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Reference no: EM132410881

A stock is trading at $40 and has an annual volatility of 25%. The risk-free interest rate is 2%. A 12-month European call and a 12-month European put both have a strike price of $45.

a) If you have sold the call, how do you fully hedge your position with stock and bond?

b) If you have sold the put, how do you fully hedge your position with stock and bond?

Reference no: EM132410881

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