Bill Jones inherited 5,000 shares of stock priced at $45 per share. He does not want to sell the stock this year due to tax reasons, but he is concerned that the stock will drop in value before year-end. Bill wants to use a collar to ensure that he minimizes his risk and doesn't incur too much cost in deferring the gain. January call options with a strike of $50 are quoted at a cost of $2, and January puts with a $40 exercise price are quoted at a cost of $3. If Bill establishes the collar and the stock price winds up at $35 in January, Bill's net position value including the option profit or loss and the stock is _________.

Respuesta :

Answer:

$195,000

Explanation:

call strike price $50

call premium received $2

put strike price $40

put premium paid $3

you pay $2 - $3 = -$1

stock value                           $35              

put value                                $5              

call value                                 -                  

premium paid                        -$1                

net stock value                     $39              

total # of stocks                 5,000          

portfolio's value             $195,000