QUESTION 4 (15 marks) a. What is a short sale? Why do people short-sell? What considerations impact the profitability of a short sale? b. You are given the following information: The current price of a share of CB Board stock is $100. CB Board stock pays a continuous dividend yield of 2%. The continuously-compounded interest rate is 8%. If T = 6 months, what would be the price of: (i) An outright purchase? (i) A fully leveraged purchase? 2 (iii) A prepaid forward contract? 2 (iv) A forward contract? 2 c. A 9-month European call option with a strike price of 76 on ABC stock costs four times as much as a 9-month European put option with a strike price of 76 on ABC stock. The price of ABC stock is currently 73, and ABC is a non-dividend paying stock. The continuously-compounded risk-free interest rate is 6%. Find the price of the 9-month European call option. QUESTION 4 (15 marks) a. What is a short sale? Why do people short-sell? What considerations impact the profitability of a short sale? b. You are given the following information: The current price of a share of CB Board stock is $100. CB Board stock pays a continuous dividend yield of 2%. The continuously-compounded interest rate is 8%. If T = 6 months, what would be the price of: (i) An outright purchase? (i) A fully leveraged purchase? 2 (iii) A prepaid forward contract? 2 (iv) A forward contract? 2 c. A 9-month European call option with a strike price of 76 on ABC stock costs four times as much as a 9-month European put option with a strike price of 76 on ABC stock. The price of ABC stock is currently 73, and ABC is a non-dividend paying stock. The continuously-compounded risk-free interest rate is 6%. Find the price of the 9-month European call option