Compute the value of the derivative

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Reference no: EM131923654

Suppose that a stock is currently selling for $20, but could go up in price to $22 or fall to $18. Assume that the strike price is $21 and the option expires in 3 months. The interest rate is 12% a year.

A. Discuss your strategy of shares to be bought for each share of a call sold short, and explain why your portfolio would then be riskless.

B. Compute the value of the derivative.

Reference no: EM131923654

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