Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. suppose the call price is $14.10 and the put price

Suppose the call price is $14.10 and the put price is $9.30 for stock option where...

90.2K

Verified Solution

Question

Finance

Suppose the call price is $14.10 and the put price is $9.30 forstock option where the exercise price is $100, the risk free rateis 5 percent (continuously compounded), and the time to expirationis one year. Explain how you would create a synthetic stockposition and identify the cost. Suppose you observe a $100 stockprice; identify any arbitrage opportunity.

Answer & Explanation Solved by verified expert
3.6 Ratings (568 Votes)
To create a synthetic long stock position we must buy the calland sell the put with the same strike price 100 here So if theprice of the underlying stock goes above 100 the put option isworthless and will not be exercised    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

Suppose the call price is $14.10 and the put price is $9.30 forstock option where the exercise price is $100, the risk free rateis 5 percent (continuously compounded), and the time to expirationis one year. Explain how you would create a synthetic stockposition and identify the cost. Suppose you observe a $100 stockprice; identify any arbitrage opportunity.

Other questions asked by students

Biology
1.2K views

Summarize how cellular respiration and photosynthesis are important to the carbon cycle.

Basic Math
1.2K views

motorboat yacht C yacht tug boat motorboat canoe Choose the correct answer below OA This...

Basic Math
1.2K views

12 Use the graph of g x to answer each question 10 pts 6 5...

Algebra
1.2K views

Show that Z is integrally closed. and more generally, show that a UFD is integrally...

Algebra
1.2K views

Solve V LWH for W W

Accounting
1.2K views

Jose Loder established Bronco Consulting on August 1, 20Y1. The effect of each transaction and...

Accounting
1.2K views

TAX QUESTIONS Businessperson incurs the following 162 business deductions. To what extent does...

Accounting
1.2K views

GM Electronics expects to sell 800 alarm systems each month of...

Accounting
1.2K views

Item 1: On January 1, 2024, Entity L had 40,000 shares of $1 par value...

Accounting
1.2K views

Planifique la produccin para un perodo de cuatro meses: de febrero a mayo. Para febrero...

Accounting
1.2K views

A, B and C share profits and losses by allowing A and C to receive...

Accounting
1.2K views

Mankin Corporation started the year with total assets of $60,000, total liabilities of $40,000, and...