Question
(i) The current stock price is 100. The call option premium with a strike price 100 is 8. The effective risk-free interest rate is 2%.
(i) The current stock price is 100. The call option premium with a strike price 100 is 8. The effective risk-free interest rate is 2%. The stock pays no dividend. What is the price of a put option with strike price 100? (Both options mature in 3 months.)
(ii) The 3-month forward price is 50. The put option premium with a strike price 52 is 3 and the put option matures in 3 months. The risk-free interest rate is 4% p.a., compounded quarterly. The stock pays no dividend. What is the price of a call option with a strike of 52 and matures in 3 months?
(iii) What are the reasons to not hedge?
A. Distress costs B. Costs of monitoring C. Taxes D. Risk Aversion
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