Exhibit 22.3 Use the Information Below for the Following Problem(S)

question 2

Multiple Choice

Exhibit 22.3
Use the Information Below for the Following Problem(S)
A stock currently trades for $130 per share. Options on the stock are available with a strike price of $125. The options expire in 10 days. The risk free rate is 3% over this time period, and the expected volatility is 0.35.
-Assume that you have just sold a stock for a loss at a price of $75,for tax purposes.You still wish to maintain exposure to the sold stock.Suppose that you buy a call with a strike price of $70 and a price of $6.75.Calculate the effective price paid to repurchase the stock if the price after 35 days is $65.

• A) $71.75
• B) $76.75
• C) $58.25
• D) $81.75
• E) None of the above

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