The stock price of X is currently $85. A 6-month call option with a strike price of

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The stock price of X is currently $85. A 6-month call option with a strike price of $92.50 written on X stock is currently selling for $7.50. The risk-free interest rate is 5% p.a. (continuous compound).

Answer the following questions:

i. Suppose that puts on X are not traded. Show in detail how to replicate the payoff of a put option.

ii. Suppose that the puts are traded. Calculate the price of a 3-month put option with a strike price of $70.

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Investments

ISBN: 9780073530703

9th Edition

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

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Posted Date: Dec 30, 2023 06:46 AM

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The stock price of X is currently $85. A 6-month call option with a strike price of

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i Replicating the Payoff of a Put Option Heres how to replicate the payoff of a put option when puts ... View the full answer

Investments

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