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Suppose a trader buys a call and a put option on a stock with a strike price of $60 and time to maturity of three months (t=0.25). Suppose that the current stock price of the underlying is also $60, the annual risk-free rate is 2% and the annual standard deviation of the underlying price change is 20%.
a) Suppose that the price increases to $50 at maturity, what is the profit or loss of this strategy.
b) What price does the trader needs the volatility to achieve in order to profit?
c) Now if another trader buys a call option with a strike price of $62 and a put option with a strike price of $58 with everything else the same, what price does the trader needs the volatility to achieve in order to profit?
One month ago, they added five workers, and productivity also increased by 50,000 pages per day. Copiers cost about twice as much as workers. Would you recommend they hire another employee or buy another copier?
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