Calculate the price of the stock.

Reference no: EM132162492

Question - 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 percent 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.

You will calculate the price of the stock.

Textbook: Fundamentals of Corporate Finance, 6th Cdn Edition, Brealey, Myers, Marcus, Maynes, Mitra.

Reference no: EM132162492

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