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Your company wants to invest its cash surplus of $ 1 m . in a GIC ( i . e . , certificate of deposit
Your company wants to invest its cash surplus of $m in a GIC ie certificate of
deposit for a period of months. The best GIC rate that it could find is pa semiannual
compounding. The treasurer of your company has asked you to explore the possibility of
creating a synthetic lending transaction by a portfolio of options and stocks. You observed the
following information:
Security Price
month European call whose exercise price $ $
month European put whose exercise price $ $
the underlying nondividendpaying stock $
Based on the above observations, will your company be better off with the GIC or the synthetic
lending? If the synthetic lending is better, please also provide the details of how it can be
created in order to lend $m
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