Question
The current stock price of Perrari is 40 and the price of a 10-month call option with a strike price of 50 written on Perraris
The current stock price of Perrari is 40 and the price of a 10-month call option with a strike price of 50 written on Perraris stock is 12. The risk-free interest rate is 13% p.a with continuous compounding. Based on this information, answer the following questions:
i. Suppose that put options on Perrari are not traded. Show how to replicate the payoff of a put option.
ii. Suppose that put options are traded. Calculate the price of a 10-month put option with a strike price of 50 (show all the details of your calculations and display the results with four decimal places
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