What is the portfolio payoff of buying

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Q1. An investor owns 1,000 Microsoft shares currently worth $28 per share. A two-month put with a strike price of $27.50 costs $1. The investor decides to hedge by buying 10 contracts. Each option gives you the right to sell 100 shares at the strike price K=27.5. Plot the payoff of his portfolio. What is the payoff when stock prices are at different levels?

Q2. Assume 3-year interest rate is 6%, a 3-year zero-coupon bond can be purchased at $835.27. Also, assume that a 3-year at the money call option costs $164.73. At the money option means that the strike price is the same (or similar to) the current price (S0=K). What is the portfolio payoff of buying a 3-year zero-coupon bond and long a call option when the futures stock price is St?

Reference no: EM133137220

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