1) You are considering an investment in the following structured product. At maturity T, the

structured product will pay $100 for every dollar the S&P 500 exceeds its current level of

$3000. If the S&P 500 ends up below $3000, the payout is zero. Also, your payout maxes out

at $10,000: that is, even if the S&P 500 rises above $3100, you will still only make $10,000

at most. How much is this structured product worth today? Proceed as follows:

• Use the table below to calculate the price of this replicating portfolio. The table reports

the market prices of puts and calls written on the S$P 500 with maturity T of different

strikes.

K Call Price Put Price

2800 485.03 229.59

2900 432.60 275.17

3000 384.65 25.24

3100 341.03 379.64

3200 301.53 438.16

b) Suppose these options have maturity of one year and the current dividend yield is zero. What

must be the risk-free interest rate?