XYZ stock pays no dividends and its current price is 100. Assume the put, the call and
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XYZ stock pays no dividends and its current price is 100.
Assume the put, the call and the forward on XYZ stock are available and are priced so there are no arbitrage opportunities. Also, assume there are no transaction costs.
The annual effective risk-free interest rate is 1%.
Determine which of the following strategies currently has the highest net premium.
(A) Long a six-month 100-strike put and short a six-month 100-strike call
(B) Long a six-month forward on the stock
(C) Long a six-month 101-strike put and short a six-month 101-strike call
(D) Short a six-month forward on the stock
(E) Long a six-month 105-strike put and short a six-month 105-strike call
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E Note that buying or selling a genuine forward as ...View the full answer
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