FedEx is selling for $105 a share. A FedEx call option with one month until expi

Question

FedEx is selling for $105 a share. A FedEx call option with one month until expiration and an exercise price of $115 sells for $2.50 while a put with the same strike and expiration sells for $12.20 a. What is the market price of a zero-coupon bond with face value $115 and 1 month maturity? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Market price b. What is the risk-free interest rate expressed as an effective annual yield? (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Risk-free interest rate

Explanation / Answer

call + market price of bond = put + share price

market price of bond = 12.2 + 105 - 2.5 = 114.70

115 / (1 + R / 12) = 114.7

R = 12 * ( (115/114.7) - 1 ) = 3.14% = 3.14

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