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Question 3 Suppose XYZ stock has a price of $50 and pays no dividends. The effective annual interest rate is 10%. Draw payoff and profit diagrams for a short position in the stock. Verify that profit is 0 at a price in 1 year of $55.
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Answer #1

Snkerest Inconme for 45o in year n &Shost stouk pano 455- stit can be clearly verified from the payoff diagram that profit is 0 at stock price of $55 after 1 year.

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