Company ("ABC") located in Arlington, Texas makes TV sets. It agrees to sell 1,000 TV sets to Sanborn Ltd. Located in Mexico Cit
1 answer:
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Solution :
with the same exercise price.
X = exercise price = 50
1). Position to be taken :
-- buy 10 numbers of Put options with strike price of $ 50 per unit.
--- short (sell) 10 numbers of Call option with strike price of $ 50 per unit.
2). Cost of synthetic short position = ,
where, P = price of 1 put ption
C = price of 1 call option
The Call - Put parity equation :
Here, C = Call premium
X = strike price of call and Put
r = annual rate of interest
t = time in years
= initial price of underlying
P = Put premium
Therefore,
Here, t = 1, = 48, X = 50
So the cost of the position is given as :