interest rates and parity of a call and put
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March 30, 2021interest rates and parity of a call and put
Interest Rates and Parity
A call is $230 costs $1.20 and a put at the same price costs $1. Both expire at the end of year 3, and the current market price of is $200.
1. What is the fair value of the (annual) risk free rate?
2.What happens to the price currency if =10% and the cost for options are exactly the same?
Note: Answer this question using simple compound interest rate.
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