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What is the amount of net investment in the stock

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Reference no: EM132751915

You are evaluating a stock that is currently selling for $40 per share. Over the investment period you think that the stock price might go down 10% or go up 15%. There is a call option available on the stock with an exercise price of $45. Answer the following questions about hedging your position in the stock. Assume that you will hold one share, and the risk-free rate is 5%.

Problem 1: What is the hedge ratio?

Problem 2: How much would you borrow to purchase the stock? What is the amount of your net investment in the stock?

Reference no: EM132751915

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