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In-s [12.5K]
3 years ago
8

You buy a share of stock, write a one-year call option with X = $10, and buy a one-year put option with X = $10. Your net outlay

to establish the entire portfolio is $9.50. What is the payoff of your portfolio? What must be the risk-free interest rate? The stock pays no dividends. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Business
1 answer:
Ronch [10]3 years ago
5 0

Answer:

The payoff of your portfolio shows a risk-less with time-T and stock value equal to $10.

The risk-free interest rate must be 5.26%

Explanation:

position                 Sr<10       Sr>10

buy stock               Sr              Sr

short call                  0             -(Sr - 10)

long call                   10 - Sr       0

total                           10              10

Therefore, The payoff of your portfolio shows a risk-less with time-T and stock value equal to $10.

risk - free interest rate = [[strike price/expected value]/net cost] - 1

                                      = [10/9.5] - 1

                                      = 5.26%

Therefore, The risk-free interest rate must be 5.26%

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Answer:

The cash flow mark to market proceeds = $754.45

Explanation:

The current index value after 12 months = current stock index * (1 + risk free - dividend yield)^12

= 1800 * (1 + 0.50% - 0.20%)^12

The current index value after 12 months = 1865.88

The future index value after 12 months = future stock index * (1 + risk free - dividend yield)^12

= 1820 * (1 + 0.50% - 0.20%)^11

The future index value after 12 months= 1880.97

The cash flow mark to market proceeds = (future index future value - current index future value) * multiplier

= (1880.97 - 1865.88) * 50

The cash flow mark to market proceeds = $754.45

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The situation here is that the appraiser is:

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