Question
Suppose the current stock price is $50 and you believe that, one year from now, the stock will sell for either $60 (up-state) or $30
Suppose the current stock price is $50 and you believe that, one year from now,
the stock will sell for either $60 (up-state) or $30 (down-state). The yield on a 1-year risk
free zero coupon bond is currently 4%. If you want to replicate a call option payoff with
an exercise price of $40, how much should you borrow today?
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Public Finance A Contemporary Application Of Theory To Policy
Authors: David N Hyman
10th Edition
053875446X, 978-0538754460
