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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.

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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?

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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 ... blur-text-image

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