A stock's current price is ($ 100). There are two possible prices at the end of the
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A stock's current price is \(\$ 100\). There are two possible prices at the end of the year: \(\$ 150\) or \(\$ 75\). A call option to buy one share at \(\$ 100\) at the end of the year sells for \(\$ 20\). Suppose that you are told that 1. writing 3 calls, 2. buying 2 stocks, and 3. borrowing \(\$ 140\)
is a perfect hedge portfolio, i.e. a risk free portfolio. What is the risk free rate of interest?
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Related Book For
Lectures On Corporate Finance
ISBN: 9789812568991
2nd Edition
Authors: Peter L Bossaerts, Bernt Arne Odegaard
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