The current price of non-dividend-paying stock

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1. The current price of a non-dividend-paying stock is $51. Over the next year it is expected to rise to $62 or fall to $41. Assume the risk free rate is zero. An investor buys a put option with a strike price of $50. Assume that the option is written on 100 shares of stock.

What stock position should the investor take today so that she would hold a riskless portfolio if it was combined with the long put option position?

2. The current price of a non-dividend-paying stock is $60. Over the next six months it is expected to rise to $71 or fall to $49. Assume the risk-free rate is zero. An investor sells a call option with a strike price of $62 per share. Assume that the option is written on 100 shares of stock.

What stock position should the investor take today so that he would hold a riskless portfolio if it was combined with the short call option position?

Reference no: EM131541275

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