FBE459_Homework3(1)

FBE459_Homework3(1) - UNIVERSITY OF SOUTHERN CALIFORNIA...

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UNIVERSITY OF SOUTHERN CALIFORNIA MARSHALL SCHOOL OF BUSINESS FBE 459 Financial Derivatives (P. Matos – Spring 2011) Homework 3 (due: start of class on Monday, April 4) Q.1. The price of a non-dividend paying stock is $18 and the price of a 3-month European call option on the stock with a strike price of $20 is $1. The risk-free is 4% per annum. a. What should be the price of a 3-month European put option with a strike price of $20? b. Explain what arbitrage opportunity exists if the European put option price is $2? Q.2. The The stock of the pharmaceutical company is trading at $40. There are currently two options trading: a European call option with a strike price of $45 and a European put option with the same strike price of $45. Both options have the same maturity of 1 year. Currently the interest rate is at 9.3% per year. a. The call costs $3. What needs to be the price of the put?
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FBE459_Homework3(1) - UNIVERSITY OF SOUTHERN CALIFORNIA...

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