Consider the following information on put and call options on a stock: Call price = $6.60 Put
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Question:
Consider the following information on put and call options on a stock:
Call price = $6.60
Put price = $8.90
Exercise price = $90
Days to option expiration = 148
Current stock price = $87.42
Risk-free rate = 7 percent
a) Based on put-call parity to calculate prices of the following:
i. Synthetic put option
ii. Synthetic underlying stock
iii. Synthetic call option
iv. Synthetic bond
b) For each of the derivative in Part A, explain if there is any mispricing. If thee is
mispricing then illustrate an arbitrage transaction using a synthetic call (two sided).
Related Book For
Money, Banking, and the Financial System
ISBN: 978-0134524061
3rd edition
Authors: R. Glenn Hubbard, Anthony Patrick O'Brien
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