Assume that the current stock price is $50 per share, that call options can be purchased with an exercise price of $60 per share, that bank loans can be obtained for a 10% nominal rate, and that at expiration of the option in three months, the stock will either be valued at $30 or $70.Show that it is possible to replicate the stock payoff by borrowing and buying a call option.

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The Answer of Assume that the current stock price is $50 per share, that call options can be purchased with an exercise price of $60 per share, that bank loans can be obtained for a 10% nominal rate, and that at expiration of the option in three months, the stock will either be valued at $30 or $70.Show that it is possible to replicate the stock payoff by borrowing and buying a call option.

Assume That the Current Stock Price Is $50 Per Share