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A company sells a certain product at a current price of 500.
The company hedges against price decli ...
A company sells a certain product at a current price of 500.
The company hedges against price declines using one year 500 strike
European put option with a premium of 38.84. The risk free annual
effective rate of interest is 9%. X is the company’s profit from
the put option for a price expiration of 490. Determine
X.
X = - 38.84 Clarification: X is the organization's benefit from the put choice at a cost lapse of 490. At termination, the organization's put choice will have an inborn worth of 10 (500-490), and since it paid a premium of 38.84 for the choice, it wi