The current price of a nondividend-paying stock is 1,000 and the continuously compounded risk-free interest rate is
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The current price of a nondividend-paying stock is 1,000 and the continuously compounded risk-free interest rate is 5%. Richard wants to lock in the ability to sell a unit of this stock in six months for a price of 1,020. He can do this by buying or selling 6-month 1,020-strike European put and call options on the stock.
Determine the positions in the put and call options that Richard should take to achieve his objective and calculate the cost today of establishing this position.
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The positions that Richard should take in the call a...View the full answer
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