You buy a share of stock, write a one-year call option with X = $12, and buy a one-year put option with X = $12. Your net outlay to establish the entire portfolio is $11.50. What must be the risk-free interest rate? The stock pays no dividends.

4.35%

Explanation:

You buy a share of stock, write a one-year call option with X = $12, and buy a one-year put option with X = $12. Your net outlay to establish the entire portfolio is $11.50. What must be the risk-free interest rate? The stock pays no dividends.

Given the following :

1 - year call option with X = $12

1- year put option with X = $12

Net outlay to establish portfio = $11.50

No dividend

Risk-free interest rate :

(X / net outlay) - 1

(12 / 11.50) - 1

1.0434782 - 1

= 0.0434782

Expressing as a percentage :

0.0434782 * 100

= 4.347%

=4.35%

answer; charters;