Using a table similar to the following, calculate the expiration date value of the investor’s combined (i.e., stock and derivative) position. In calculating net portfolio value, ignore the time differential between the initial derivative expense or receipt and the terminal payoff.

See Attachment / Done in Excel only!!!/ Each problem done on a separate sheet in Excel!!/

Suppose that an investor holds a share of Sophia common stock, currently valued at $50. She is concerned that over the next few months the value of her holding might decline, and she would like to hedge that risk by supplementing her holding with one of three different derivative positions, all of which expire at the same point in the future:

(1) A short position in a forward with a contract price of $50

(2) A long position in a put option with an exercise price of $50 and a front-end premium expense of $3.23

(3) A short position in a call option with an exercise price of $50 and a front-end premium receipt of $5.20

a. Using a table similar to the following, calculate the expiration date value of the investor’s combined (i.e., stock and derivative) position. In calculating net portfolio value, ignore the time differential between the initial derivative expense or receipt and the terminal payoff.

b. For each of the three hedge portfolios, graph the expiration date value of her combined position on the vertical axis, with potential expiration date share prices of Sophia stock on the horizontal axis.

c.

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