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Consider the following economy where you can only trade these securities: - Google Stock trading at $55 - Put option on Google that expires in
Consider the following economy where you can only trade these securities: - Google Stock trading at \$55 - Put option on Google that expires in one year, with a strike price of $45, and costs $5 - Call option on Google that expires in one year, with a strike price of $45, and costs $18 - A Two-year zero-coupon bond with YTM of 6% If the expectations hypothesis holds, then what is the market's expectation of the one-year spot rate one year from today? There is no arbitrage in this economy. 6.47% 4.87% 7.14% 5.61% 8.11%
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