Answer:
D) Two break even points, S* = 130 and S* = 170
Explanation:
option a)
if the stock price is $145,
put option β you win $5 - $5 (option price) = no gain
call option β you lose $15 (option price)
WRONG ANSWER
option b)
if the stock price is $155,
put option β you lose $5 (option price)
call option β you win $5 - $15 (option price) = -$10 loss
WRONG ANSWER
option c)
if the stock price is $150,
put option β you lose $5 (option price)
call option β you lose $15 (option price)
WRONG ANSWER
option d)
if the stock price is $170,
put option β you lose $5 = -$5 loss
call option β you win $20 - $15 (option price) = $5 gain
total gain/loss = $0
if the stock price is $130,
put option β you win $20 - $5 (option price) = $15 gain
call option β you lose $15 (option price)
total gain/loss = $0
CORRECT ANSWER