BIN139F.Pr.pdf X BS67B.Pr.pdf + Create Sign in All tools Edit Convert E-Sign Find text or tools Q H Al Assistant All tools X Copyright (c) 2014-2022 by Avi Bick Export a PDF Student's name: LR2022-11 Edit a PDF Student number: Problem BIN-139F Create a PDF We are given a one-period binomial tree, where S is the price of a non-dividend-paying stock. and V is the price of "Security A", a derivative security on the stock. 49 Combine files S(1) = 224 U = 1.12 V( 1) = 47 d = 0.97 S(0) = 200 0 Organize pages V(0) = 64 S(1) = 194 V ( 1 ) 92 Al Assistant (a) Show how the stock and Security A can create synthetic lending. (The two possible outcomes must be the same and positive. Generative summary Use one unit of Security A, long or short. Solution: Request e-signatures Units Time-0 Time-1 value value S down S up Scan & OCR Stock Security A Protect a PDF Total N/A Redact a PDF (b) Complete: The synthetic (non-annualized) interest rate is ..... Compress a PDF Show work. Prepare a form (c ) Now suppose that it is also given that one can lend or borrow at the View more (non-annualized) interest rate of 4.7% That is, in the class notation, R = FV($1) = 1.047 Show how one can obtain arbitrage profits. Note: You need to use the given interest rate, not the theoretical one computed in (b) Solution: Units Time-0 Time-1 value 74.6% value S down s Stock Security A Bond (lending) Total N/A Convert, edit and e-sign (The bond has a maturity value of $1 at time 1. If you prefer to regard it as lending/borrowing, PDF forms & agreements. you can leave the number of units blank. Negative lending means borrowing.) O Free trial