Consider a Portfolio Consisting of a Long Call with an Exercise

question 3

Multiple Choice

Consider a portfolio consisting of a long call with an exercise price of X,a short position in a non-dividend paying stock at an initial price of S₀,and the purchase of riskless bonds with a face value of X and maturing when the call expires.What should such a portfolio be worth?

• A)C + P - X(1 + r)^-T
• B)C - S₀
• C)P - X
• D)P + S₀ - X(1 + r)^-T
• E)none of the above

---

Definitions:

Competitive Organizations

Entities that strive to outperform others in their industry in terms of sales, product quality, customer service, etc.

Complex

Composed of many interconnected parts, resulting in a system or entity that is complicated and difficult to understand in full detail.

Playing Field

A metaphor for the environment or situation in which a set of activities, especially competitive ones, take place, emphasizing on equal opportunities and fairness.

Politicking

Engaging in political maneuvering or strategy, often involving scheming, intrigue or manipulation to achieve a specific goal or advantage.