Question

ABC stock is currently trading at $100. In the next period, the price will either go up by 15% or down by 10%. The risk-free rate of interest over the period is 5%. Consider a call and a put option with $100 strike price with one-year maturity. Which of the following statement is false based on one period binomial option pricing model?

Group of answer choices

The synthetic put would include 0.6 unit of short underlying asset

The synthetic call would include borrowing $48.86 at risk-free rate

The synthetic call would include 0.6 unit of long underlying asset

The synthetic put would include investing $41.62 at risk-free rate

Answer 1

The solution is done in the best manner explaining every option.