Question

When you construct the replicating portfolio for the option in the previous question how many dollars do you need to invest in the cash account

Answer 1

Answer: The same amount of dollars

When it comes to the financial level, a replicating portfolio as the name implies, is a repetition of specific flows of a given asset, so it must be constituted with the same resources. In this case, the same amount of cash would be needed to create the replica.