Corpfin Mod 20: Homework student comments

Author	Message
kelieg	kelieg posted 13 Years Ago #11965 #
Forum Newbie Group: Forum Members Posts: 1, Visits: 36	Will someone look through my process and let me know if I am lookin that this wrong? When I do Question C part one I use the Put-Call Parity, Put Price = Call Price - Share Price + PV of Exercise price 5 = 5 - 77 + 80/1.02 0 = 1.43 So shouldn't the Cash Outflow at Time 0 be equal to -1.43 since the investor instantly made a profit by buying a put option and selling a synthetic put option? 0
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NEAS	NEAS posted 7 Years Ago #16385 #
Supreme Being Group: Administrators Posts: 4.5K, Visits: 1.6K	+x tamckenzie - 7/29/2008 11:55:43 AM For part B, if the put has a price of $5, then c + PV(X) = p + s => c = $3.57 So, would we prefer either the put (since 6.43 > 5.00) or the call (since 5.00 > 3.57)? I'm a bit confused. [NEAS: Use the following logic. If the call is truly worth $5, the put is worth $Z. If it is selling for $5, it is either overpriced or underpriced. We should buy under-priced securities and sell over-priced securities. If the put is truly worth $5, the call is worth $Z. If it is selling for $5, it is either overpriced or underpriced. We should buy under-priced securities and sell over-priced securities. Substitute the figures. The result: we should buy one of the options and sell the other option.] 0
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