Problema derivative security of european style with, Ask an Expert

Accounting

Problem:

A derivative security of European style with expiration in 1 year has this payoff: max(0, min(3K-S, S-K)), where K = 10 is the strike price and S is the price of the underlying stock at expiration. The stock currently trades at 25, and the following prices for European options on the stock are known (all expiring in 1 year).

Type	Strike	Price
Call	10	16.76
Call	20	7.02
Put	10	0.85
Put	30	6.05

Requirement:

Question 1: Draw a graph of the payoff as a function of S

Question 2: What is the 1 year interest rate r?

Question 3: What is the price P of the derivative security?

Note: Please show basic calculation

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91167159

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