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Question: A share of Formila Corp. is currently trading at $38.50, and a 1-year call option on Formila with X = $40 is trading at $3. The risk-free interest rate is 4.5%.

a. What should be the price of a 1-year put option on the stock with X = $40? Why?

b. If the price of a put is $2, construct an arbitrage strategy. c. If the price of a put is $4, construct an arbitrage strategy.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92262522

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