What portfolio of options and risk-free asset

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1. What portfolio of options and risk-free asset (if any) can be used to replicate the payoffs of a forward contract on IBM stock with 9 months to maturity? Assume the forward price satisfies no-arbitrage pricing. IBM stock currently trades for $90/share and pays no dividends within the next year. The yield curve is flat at 5%.

2. Using the same information as in question (3), what portfolio of IBM stock and risk-free bonds can be used to replicate the following portfolio. Assume all bonds have $100 face value:

(a) Long 1 call option with strike price $70 and short one put option with strike price $70

3. Using the same information as in questions (3,4), what portfolio of IBM stock and risk-free bonds can be used to replicate the following portfolio:

(a) Long 1 call option with strike price $80 and short one put option with strike price $70

Reference no: EM13927599

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