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Given: C = $4.75, P = $3.25, S = $42, K = $40, T = 6 months, r = 2% p.a.
a. What would you do to exploit these quotes? (List the transactions.) What would be your riskless arbitrage profit?
b. How could you synthetically short-sell an asset using only options and borrowing or lending at the risk-free rate? Would you be better off short-selling the stock, or synthetically short-selling it using options?
Describe the effect of this bond buying program on the following economic variables.
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Calculate the NPV and IRR of this investment under each of the four terminal value assumptions discussed in class.
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Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%.
The financial statements report the cumulative impact of all transactions recorded as of the financial statement date.
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