Question
The price of a call option on a non-dividend paying stock with a strike price of 80 and six months to maturity is 5.50.
The price of a call option on a non-dividend paying stock with a strike price of 80 and six months to maturity is 5.50. The price of a put option on the stock with a strike price of 80 and six months to maturity is 7.50. The continuously compounded risk-free interest rate is 7.644%. Describe how you would create a synthetic share of the stock using the call, the put and cash (bond). Use a payoff table to demonstrate you have a portfolio that replicates the payoff of a long stock. What is the current price of the stock?
Step by Step Solution
3.38 Rating (164 Votes )
There are 3 Steps involved in it
Step: 1
To create a synthetic share of the stock we would use a combination of the call option the put option and cash or a riskfree bond The key is to set up ...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get StartedRecommended Textbook for
Fundamentals of Corporate Finance
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
11th edition
77861701, 978-0077861704
Students also viewed these Finance questions
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
View Answer in SolutionInn App