The price of an asset is currently 100. The profit for a bull spread created by a purchased European call on the asset with strike price 90 and a written European call on the asset with strike price 105 both expiring at the end of one year is 0. The premium for the purchased call is 13.54, and the premium for the written call is 4.61. The continuously compounded risk-free rate of interest is 5%. Determine the spot price of the asset at the end of one year. A) 97.50 B) 98.93 C) 99.39 D) 101.07 E) 103.52
The price of an asset is currently 100. The profit for a bull spread created by a purchased European call on the asset with strike price 90 and a written European call on the asset with strike price 105 both expiring at the end of one year is 0. The premium for the purchased call is 13.54, and the premium for the written call is 4.61. The continuously compounded risk-free rate of interest is 5%. Determine the spot price of the asset at the end of one year. A) 97.50 B) 98.93 C) 99.39 D) 101.07 E) 103.52
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The price of an asset is currently 100. The profit for a bull spread created by a purchased European
call on the asset with strike price 90 and a written European call on the asset with strike price 105
both expiring at the end of one year is 0. The premium for the purchased call is 13.54, and the
premium for the written call is 4.61. The continuously compounded risk-free rate of interest is 5%.
Determine the spot price of the asset at the end of one year.
A) 97.50
B) 98.93
C) 99.39
D) 101.07
E) 103.52
In the next two problems use the following information about the XYZ stock:
At time 0, the share price of XYZ stock is 20. The annual effective risk free rate of interest is 5%,
and the stock pays no dividends. At that time, European call and put options expiring at time 1
have the following prices:
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