Answer-first summary for fast verification
Answer: Lower than $32.00 or higher than $59.00
A **strap** is a combination of **two calls and one put**. First find the put price using put-call parity: \[ p = c + K e^{-rT} - S \] \[ p = 6.65 + 50e^{-0.04\cdot1} - 50 \approx 4.69 \] Total premium paid: \[ 2(6.65) + 4.69 = 17.99 \] For the upside breakeven: \[ 2(S-K) = 17.99 \Rightarrow S \approx 58.99 \approx 59.00 \] For the downside breakeven: \[ K-S = 17.99 \Rightarrow S \approx 32.01 \approx 32.00 \] So the breakeven range is **lower than $32.00 or higher than $59.00**.
Author: Manit Arora
Ultimate access to all questions.
$50.00; i.e., S(0) = K = $50.00, Rf = 4.0% and T = 1.0 year. If the price of an ATM European call is $6.65, which is nearest to the final stock's breakeven profit range?A
Lower than $32.00 or higher than $59.00
B
Lower than $32.00 or higher than $68.00
C
Lower than $36.70 or higher than $63.30
D
Lower than $43.50 or higher than $56.65
No comments yet.