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Please answer all the questions listed, thanks. 4) A 3 year European call and a 3 year European put on a dividend paying stock are
Please answer all the questions listed, thanks.
4) A 3 year European call and a 3 year European put on a dividend paying stock are traded at $22.13 and $21.85 respectively. Both options have the same strike $102. The risk free rate is 4% (continuous compounding). Current stock price is $100 and pays 3% continuous dividend yield. (1) Are these options fairly priced? If not, what trade can you put on to monetize the miss pricing? (2) Assume that the call price is fairly priced, what should be the fair price for the put option? 4) A 3 year European call and a 3 year European put on a dividend paying stock are traded at $22.13 and $21.85 respectively. Both options have the same strike $102. The risk free rate is 4% (continuous compounding). Current stock price is $100 and pays 3% continuous dividend yield. (1) Are these options fairly priced? If not, what trade can you put on to monetize the miss pricing? (2) Assume that the call price is fairly priced, what should be the fair price for the put optionStep by Step Solution
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