The following is a listing of option prices on Perdida Enterprises on December 12,2002:

The current stock price is 45.75,and the riskless rate is 7%.
a. Consider the following position: sell one January 40 call; buy two January 45 calls; sell one January 50 call. Evaluate the net cash flows on this position at expiration for different stock prices, and draw a payoff diagram.
b. Are the three January put options correctly priced relative to the corresponding call options? (Assume that there are 42 days on the January option.)

Question

The following is a listing of option prices on Perdida Enterprises on December 12,2002:

The current stock price is 45.75,and the riskless rate is 7%.
a. Consider the following position: sell one January 40 call; buy two January 45 calls; sell one January 50 call. Evaluate the net cash flows on this position at expiration for different stock prices, and draw a payoff diagram.
b. Are the three January put options correctly priced relative to the corresponding call options? (Assume that there are 42 days on the January option.)

Quizplus · Accepted Answer

The Answer of The following is a listing of option prices on Perdida Enterprises on December 12,2002:

The current stock price is 45.75,and the riskless rate is 7%.
a. Consider the following position: sell one January 40 call; buy two January 45 calls; sell one January 50 call. Evaluate the net cash flows on this position at expiration for different stock prices, and draw a payoff diagram.
b. Are the three January put options correctly priced relative to the corresponding call options? (Assume that there are 42 days on the January option.)

The Following Is a Listing of Option Prices on Perdida