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This question was created from Ch 20 HW Answer Key


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4. The common stock of the C.A.L.L. Corporation has been trading in a narrow range
around $130 per share for months, and you believe it is going to stay in that range
for the next 3 months. The price of a 3-month put option with an exercise price of
$130 is $11.10. a. If the risk-free interest rate is 9% per year. what must be the price of a 3—month
call option on C.A.L.L. stock at an exercise price of $130 if it is at the money?
{The stock pays no dividends.) Price of a 3—month call option $ b-What would be a simple options strategy using a put and a call to exploit your
1.conviction about the stock price’s future movement? Stock prioe's future movement Sell a straddle ZWhat is the most money you can make on this position?
Amount $ 2: How far can the stock price move in either direction before you lose money?
Stock prioe 35 c. How can you create a position involving a put. a call, and risk less lending that
would have the same payoff structure as the stock at expiration? What is the net
cost of establishing that position now? Position Immediate CF CF in 3 months
31 5 X ST > X
Call (long) (St—130)
Put (short) —(130—St)
position Total SI SI

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