Finance Homework 7ARE 171AWinter 2011A. Havenner1.Diagrams:Briefly explain why the value of a portfolio consisting of a single share of theS&P 500 ETF (SPY)! and a put with an excercise price of $125 is constant over some range at theexpiration of the put. Tell what the range is, and describe generally what happens if the share pricemoves outside of the range. (This is to get you to think your way through the diagrams underlyingput-call parity.)2.PricingPutsfrom Calls:Based on SPY again, consider a put and a call that expire a yearfrom today, both with strike prices of $125. Today's annual risk free rate is 0.24%,i.e., 0.0024.SPY is selling for $131.02 right now and the call option is selling for $8.95. What do you expectthe put option to sell for?3. Valuing otions that are outofthe money:We want to value a six month European calloption on DCX. The exercise price is $66. The stock is currently selling for $65 per share. It isexpected either to rise to $81.25 or fall to $52 in six months. The six month risk free rate is 4.75%.
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