Stock XYZ has the following characteristics:

•The current price is 40.

•The price of a 35-strike 1-year European put option is 0.56.

•The price of a 40-strike 1-year European put option is 2.12.

•The price of a 45-strike 1-year European put option is 5.24.The annual effective risk-free interest rate is 8%. Let S be the price of the stock one year from now. All put positions being compared are short.

Determine the range for S such that the 35-strike put produce a higher profit than the 45-strike put, but a lower profit than the 40-strike put.

(A) S < 38.13

(B) 38.13 < S < 40.44

(C) 40.44 < S < 42.31

(D) S > 42.31

(E) The range is empty.

Answer rating: 100% (QA)

Now suppouse the price is 39 Then P... View the full answer