Question 2

The price of a share of Company's stock is $50. A 3-month call option on this stock with a strike price of $40 trading at $12. The annually compounded risk free rate is 5%

a. What should be the fair price on a 3-month put option on this stock with a strike price of $40?

b. Explain how you would create a synthetic 3 month put option on this stock with a strike price of $40?

c. the actual market price of a 3-month put option on this stock with a strike price of $40 is $1.2 then how would you attempt to obtain arbitrage profits?

d. Calculate your arbitrage profit, achieved today, per share of stock used as part of the arbitrage

Question 2 The price of a share of Company's stock is $50. A 3-month call option on this stock with a strike price of $40 trading at $12. The annually compounded risk free rate is 5% a. What should be the fair price on a 3-month put option on this stock with a strike price of $407 6. Explain how you would create a synthetic 3 monthput option on this stock with a strike price of $40? b. the actual market price of a 3-month put option on this stock with a strike price of 540k $1 2 then how would you attempt to obtain arbitrage profits? . Calculate your arbitrage profit, achieved today, per share of stock used as part of the arbitrage View Format Tool Table 1 Par B T IC 2