A share of Formila Corp. is currently trading at $38.50, and a 1-year call option on Formila

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A share of Formila Corp. is currently trading at $38.50, and a 1-year call option on Formila with X = $40 is trading at $3. The risk-free interest rate is 4.5%.

a. What should be the price of a 1-year put option on the stock with X = $40? Why?

b. If the price of a put is $2, construct an arbitrage strategy.

c. If the price of a put is $4, construct an arbitrage strategy.

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Financial Modeling

ISBN: 9780262027281

4th Edition

Authors: Simon Benninga

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Question Posted: Nov 03, 2020 05:49 AM

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A share of Formila Corp. is currently trading at $38.50, and a 1-year call option on Formila

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a The price of a 1 year put option on the stock with X 40 should be the same as the price of the 1 y...View the full answer

Financial Modeling

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