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:a) A stock sells for $125. A call option on the stock has an exercise price of $110 and expires in 3 months.
If the interest rate is 0.15 and the standard deviation of the stock's return is 0.30.
What would be the price of a put option on the same stock with an exercise price of $140 and the same
time (3 months) until expiration? Show all workings. (See Appendix for the Cumulative Normal
Distribution Table)
Transcribed Image Text:b) Let the spot rate be Yen 100 / $ and the 3-month forward rate be Yen 99/S. Compute the interest rate
differential between the U.S. and Japan at which interest rate parity will hold true.
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