Synthetic Equivalent. To synthetically create an ELN, an investor would (1) invest in a five-year 6%...

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Synthetic Equivalent. To synthetically create an ELN, an investor would (1) invest in a five-year 6% discount bond for $747.26 (1,000/(1.06)^5) and (2) buy a five-year, S&P 500 at-the-money call option on $1,000 notional amount with a $1,400 strike for $252.74. The initial investment for this structure is $1,000, the same as for the ELN ($747.26+$252.74). Synthetic Equivalent. To synthetically create an ELN, an investor would (1) invest in a five-year 6% discount bond for $747.26 (1,000/(1.06)^5) and (2) buy a five-year, S&P 500 at-the-money call option on $1,000 notional amount with a $1,400 strike for $252.74. The initial investment for this structure is $1,000, the same as for the ELN ($747.26+$252.74).

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Okay lets break this down stepbystep 1 Invest in a 5year 6 discount bond for 74726 A discount ... View the full answer