HW 7 Price is $88, the price of a 3-month 85 strike price call option is $5,00 Assume annualized interest rate of is the price of a put option with 3 months maturity and $85 strike price (use put-call parity) 1. Stock Ifthe put is actually selling at $1 25 ws) . sthere a way to make a proft? (show transactions and the cash Action Today Cashflow today Cashflow at maturity if S 85 TOTAL Supose the put is trading for $0.50, is there a way to make a proft? Transaction? Action Today Cashflow today Cashflow at maturity ifS>85 TOTAL 2. Binomial Call Option Valuation Problem: Based on the graph below and assuming an interest rate of 8%, compute the value of the Cal option and show the replicating portfolio S (1+u) 160] Max(O S(1u)X [15 u 15 38% (52) d -19 23% X 45) S (1+d) 142) 3. If the Market price of the call option is $12.25 (in Q2), how can you exploit the mis-pricing. At the time of Stock is at $60 of Call Option Stock is at 42 Action Toda Cash flow t Net Cash Flow