Solution-Strike price k such that this options portfolio

Strike price k such that this options portfolio replicates

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Reference no: EM132543967

Student loan debt in 2020 is the highest ever. There are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt in the U.S. alone. Student loan debt is now the second highest consumer debt category - behind only mortgage debt - and higher than both credit cards and auto loans.

Unable to obtain a student loan, you decide to use the options market to help pay for your tuition at UCI. You consider European options on a single share of Apple (ticker: AAPL) stock and assemble a portfolio of European options as follows:

-Short 100 at-the-money call options

-Long 100 at-the-money put options

-Long 100 out-of-the-money call options with strike price K

-Short 100 in-the-money put options with strike price KAll options have an expiration date of 1 year. The risk-free annual continuously compounded interest rate is zero. AAPL is currently trading at $250. Assume the stock does not pay any dividends. Assume there is no arbitrage in the market.

Determine the strike price K such that this options portfolio replicates a 1-year interest-free student loan for $15,000 as follows:

-You receive $15,000 in net option premium today

-You pay $15,000 at expiration in one yearPlease round your answer to the nearest integer.

Reference no: EM132543967

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Strike price k such that this options portfolio replicates

Reference no: EM132543967

Reference no: EM132543967

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