Question
1. Assume it is March 12, 2021. Consider the following American-style call and American-style put options with a June expiration on a stock currently priced
1. Assume it is March 12, 2021. Consider the following American-style call and American-style put options with a June expiration on a stock currently priced at $71: C(X=70); and P(X=75). The June options expire on June 21, 2021 (so the options have 101 days to maturity) and the annualized risk-free rate is 2.10% over this options life. The current market prices of the options are C=$5.75 and P=$7.30. The stock pays no dividends.
c) Assume that interest rates suddenly increase, but everything else stays the same for these two options. What would you expect to happen to the price of the call option? The put option?
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