Business, 13.04.2021 01:10 edjiejwi

The common stock of the P. U.T. T. Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next three months. You do not know whether it will go up or down, however. The current price of the stock is $100 per share, and the price of a 3-month call option at an exercise price of $100 is $10. Required:
a. If the risk-free interest rate is 5% per year, what must be the price of a 3-month put option on P. U.T. T. stock at an exercise price of $140?
b. What would be a simple options strategy to exploit your conviction about the stock price?

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The common stock of the P. U.T. T. Corporation has been trading in a narrow price range for the past...

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