# Biolabs common stock is currently selling for 40 per

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expiration. BioLabs common stock is currently selling for \$40 per share, and Rob expects that the stock months. Rob can borrow and lend at the risk-free effective annual rate of 7 percent. (Note: The effectiv annual rate of 7%. The stated annual rate can be divided based on the compounding periods. The effec

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total portfolio -13.26984 3.55E-015 22 The put option should sell for \$13.27 under the law of one price Yes there is a way to create a syntetic put option with identical payoffs. It is created above as part of ou Synthetic Put Through Replication Immediate At Maturity Position Cash Flow High S1=80 Low S2 = 20 put option 0 22 short 0.36667 of stock 14.66667 -29.33333 -7.333333 lend 27.94 -27.93651 29.33333 29.33333 total portfolio -13.26984 0 22 (c ) How much does the synthetic put option cost? Is this greater than, less than, or equal to what the a b) If no options currently trade on the stock, is there a way to create a synthetic put option with identic how would you do it? The synthetic put option costs \$13.27 as shows under the total portfolio immediate cashflow in the cha cost. This outcome makes sense due to the law of one price. If the synthetic put had a different price th for arbitrage would exist.
Put Option In 4 Months Stock Price Put Option Payoff 80 0 20 22 Calculate Hedge Ratio: -0.366667 option value range/ stock values range thus we short 0.36667 shares of stock solve systems of equations: 80x+1.05y=0 : 20x+1.05y=22 x= -0.366667 short this much stock y= 27.93651 borrow this much money th a strike price of \$42 and four months until price will either rise to \$80 or fall to \$20 in four ve annual rate of 7% is different from the stated ctive annual rate cannot be divided.)

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ur pricing calculations and reshown below. It would involve shorting 0.367 shares of stock and lending \$27.94.

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