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For a stock, you are given: (i) The price is 45. (ii) The stock volatility is 0.2. (iii) The continuously compounded risk-free rate is 0.05.
For a stock, you are given:
(i) The price is 45.
(ii) The stock volatility is 0.2.
(iii) The continuously compounded risk-free rate is 0.05.
(iv) The continuous dividend rate of the stock is 0.02.
A European put option with strike price 43 expires in 3 months. Using the Black-Scholes-Merton formula, how many shares of stock should be sold and how much should be lent, to replicate the put option?
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