***This is from Investment and Financial Mathematics (IFM) course for Actuaries. Please give handwritten solution...
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***This is from Investment and Financial Mathematics (IFM) course for Actuaries. Please give handwritten solution with all steps shown. I will give "thumbs-up" for clear and correct solution. Thanks in advance!***
Question 1 (10 marks] Si is a stock with price 30 and quarterly dividends of 0.25. The next dividend is payable in 3 months. S2 is a non-dividend paying stock with price 40. The continuously compounded risk-free interest rate is 5%. Let x be the premium of an option to give S in exchange for receiving S2 at the end of 6 months, and let y be the premium of an option to give S2 in exchange for receiving Si at the end of 6 months. Calculate x y
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