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Suppose that The current price of MKN corporations common shares isS0= $50 MKN doesnt pay dividends The yield curve is flat at 10% Over the
Suppose that
The current price of MKN corporations common shares isS0= $50
MKN doesnt pay dividends
The yield curve is flat at 10%
Over the next year the stock of MKN will either
go up by 40%, or
go down by 10%
(a) What is the replicating portfolio for a one-year at-the-money call on MKN?What is the call worth?
(b) What is the replicating portfolio for the at-the-money put? Whats it worth?
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