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Suppose you wanted to make a product that (after one year) provided the $1 million guarantee and received 100% of the increase in the S&P
Suppose you wanted to make a product that (after one year) provided the $1 million guarantee and received 100% of the increase in the S&P 500. How would you do it? How much would the product "cost" to create using the markets for zero-coupon bonds and call options?let's assume volatility of stock index is 25%. Please complete below table and let me know underlying formula.
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