Tom wishes to buy a European put option on ABC, Inc., a non-dividend- paying common stock, with a…
Tom wishes to buy a European put option on ABC, Inc., a non-dividend- paying common stock, with a strike price of $40 and six months until expiration. ABC's common stock is currently selling for $30 per share, and Tom expects that the stock price will either rise to $60 or fall to $15 in six months. The risk-free rate over the next six months is 2.47% (over next one year is 5%). How do you create a replicating portfolio with identical payoffs to the put option just described? o Short .56 of a share of stock and lend $32.53 o Buy .56 of a share of stock and borrow $32.53 o Buy 1.80 of a share of stock and borrow $33.33 o Short 1.80 of a share of stock and lend $32.53 o Short .56 of a share of stock and lend $33.33 Mar 31 2022 10:33 AM
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