Suppose a stock price can go up by 15% or down by 13% over the next year.
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Question:
Suppose a stock price can go up by 15% or down by 13% over the next year. You own a one-year put on the stock. The interest rate is 10% and the current stock price is $60.
- What exercise price leaves you indifferent between holding the put or exercising it now?
- How does this break-even exercise price change if the interest rate is increased?
Related Book For
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers
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