Question: Suppose you buy a 950 strike S R call sell a 1000 strike

Suppose you buy a 950-strike S&R call, sell a 1000-strike S&R call, sell a 950-strike S&R put, and buy a 1000-strike S&R put.
a. Verify that there is no S&R price risk in this transaction.
b. What is the initial cost of the position?
c. What is the value of the position after 6 months?
d. Verify that the implicit interest rate in these cash flows is 2% over 6 months.

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  • CreatedAugust 12, 2015
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