Question
You purchase a one year call option for $5.48 with a strike (exercise) price of $44.29 on a stock that is currently trading a $41.65.
You purchase a one year call option for $5.48 with a strike (exercise) price of $44.29 on a stock that is currently trading a $41.65. At the same time you sell a one year put option with the same strike price of $44.29 for $4.65. The current one year interest rate is 6.35%, one year forward (price) on the stock is $44.29.
Fill in the table below to determine the payoff of a portfolio that is long in the call option and short in the put.
| Assets | State Price ST=$40.29 | State Price ST=$42.29 | State Price ST=$44.29 | State Price ST=$46.29 | State Price ST=$48.29 |
| Call Option X= |
|
|
|
|
|
| Written Put X= |
|
|
|
|
|
| Total Payoff |
|
|
|
|
|
Suppose you also took a short position in a forward contract with a forward price $44.29, What is the payoff of the forward contract?
| Assets | State Price ST=$40.29 | State Price ST=$42.29 | State Price ST=$44.29 | State Price ST=$46.29 | State Price ST=$48.29 |
| Short-Position in the Forward Contract |
|
|
|
|
|
What is the total payoff of your two portfolios, Long Call, written put, and a short forward contract?
| Portoflios | State Price ST=$40.29 | State Price ST=$42.29 | State Price ST=$44.29 | State Price ST=$46.29 | State Price ST=$48.29 |
| Portfolio 1 Call & Written Put |
|
|
|
|
|
| Short Forward Contract |
|
|
|
|
|
| Total Payoff |
|
|
|
|
|
What is the price of the first portfolio (Long Call and Short Put)?
What is the price of the Forward Contract?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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 Started