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European options trading on the stock

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Reference no: EM133057012

The stock is trading today at $120 a share and the 1-year, $100 face value, zero coupon bond trades today at $96.

There are 1-year European options trading on the stock, as follows: C(120) = $16.5, P(120) = ?, C(130) = $12.3, P(130) = ?

Assume that you can go long or short these assets without frictions and that you can trade fractions of the shares and the zero-coupon bond. The stock does not pay dividends.

1. If a call with a strike price of $140 is traded. What does that convexity imply about its lowest price?

Reference no: EM133057012

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