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solution

You purchased some units of TTK Corp stock on January 1, 2021 at the price of $300. Suppose today is July 1 and the current stock price of TTK Corp is $390. The market value of the TTK Corp stock you own is currently at 975,000 dollars. Since you have achieved large gains over the past six months you would like to lock in through the end of the year. Suppose the stock has an estimated volatility of 15% per annum and the company is expected to pay a cash dividend of $5 per share on October 1, 2021. The risk free interest rate is 5% per annum.

b) Suppose you would like hedge so that the value of your position on the December 31 will not go below 370 per each unit of TTK stock you hold. How would you implement this hedge? Clearly explain your strategy. What is the percentage of the value of the portfolio you are giving up for this insurance?

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