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The ordinary shares of Chonkz Ltd are selling for $45. A 48week put option written on Chonkz stock is selling for $3.50. The puts exercise
The ordinary shares of Chonkz Ltd are selling for $45. A 48week put option written on Chonkz stock is selling for $3.50. The puts exercise price is $51. The riskfree rate is 8% p.a. compounded semiannually.
i. Suppose that calls on Chonkz stock are not traded (on either an exchange or the OTC market). Using the above information, explain how to create a portfolio that has an identical payoff as a call option with 48 weeks to expiry and an exercise price $51. (10 marks)
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