Reference no: EM132967307

Question - The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $95 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put option with an exercise price of $95 is $6.00.

a. If the risk-free interest rate is 9% per year, what must be the price of a 3-month call option on C.A.L.L. stock at an exercise price of $95 if it is at the money? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b-1. What would be a simple options strategy using a put and a call to exploit your conviction about the stock price's future movement?

b-2. What is the most money you can make on this position? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b-3. How far can the stock price move in either direction before you lose money? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? What is the net cost of establishing that position now?