1 answer

You produce tiramisu cakes. You plan to sell 1,000 cakes in a month. Your revenue will...

Question:

You produce tiramisu cakes. You plan to sell 1,000 cakes in a month. Your revenue will be $10,000-S(1), where S(1) denotes the price of the amount of Belgian chocolate required to dust the 1,000 cakes.

Assume that the continuously compounded annual risk-free interest rate equals 6%.

Your hedge consists of the following two components:

1. one long one-month, $9,000-strike call option on the amount of chocolate you need; its premium is Vc(0)=$60

2. one written one-month, $8,500-strike put option on the amount of chocolate you need, its premium is Vp(0)=$200

Calculate the range of profits of the hedged portfolio.


Answers

D Revenue from the tiramisu Cake socles 2) 1 long 1-year, $9000-Strike your option - the Chocolate whose premium was Ø 6o. 3)1000-8 + (3 - 9000) -(8500-52 1000-st 70oC | 1000-3-8500 ts = 1500 , for 5 <8500 2000-3, for 8500 < s < 9000 10000-$+$-9000-1

.

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