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You are faced with the probability distribution of the HPR on the stock market index fund given in Spreadsheet 5.1 of the text. Suppose the
You are faced with the probability distribution of the HPR on the stock market index fund given in Spreadsheet 5.1 of the text. Suppose the price of a put option on a share of the index fund with exercise price of $110 and time to expiration of 1 year is $12, and suppose the risk-free interest rate is 6% per year. You are contemplating investing $107.55 in a 1-year CD and simultaneously buying a call option on the stock market index fund with an exercise price of $110 and expiration of 1 year. What is the probability distribution of your dollar return at the end of the year? (Round your answers to 2 decimal places.) Probability Ending Value of CD Ending Value of Call Combined Value State of the Economy Excellent Good Poor 0.25 0.45 0.25 0.05 Crash You are faced with the probability distribution of the HPR on the stock market index fund given in Spreadsheet 5.1 of the text. Suppose the price of a put option on a share of the index fund with exercise price of $110 and time to expiration of 1 year is $12, and suppose the risk-free interest rate is 6% per year. You are contemplating investing $107.55 in a 1-year CD and simultaneously buying a call option on the stock market index fund with an exercise price of $110 and expiration of 1 year. What is the probability distribution of your dollar return at the end of the year? (Round your answers to 2 decimal places.) Probability Ending Value of CD Ending Value of Call Combined Value State of the Economy Excellent Good Poor 0.25 0.45 0.25 0.05 Crash
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