Does someone can help me with the working out of this exercise, please? For the last months, the stock of XYZ has been trading in a narrow range around 120USD and you believe that for the next month volatility will remain low

Subject:FinancePrice:3.86 Bought22

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Does someone can help me with the working out of this exercise, please?

For the last months, the stock of XYZ has been trading in a narrow range around 120USD and you believe that for the next month volatility will remain low. The price of an at the money call option, with an exercise price of 120USD trades at 1.20 USD.

1. If the price of a 1 month put option is on XYZ stock at an exercise price of 120 USD trades at 0.84 USD, what is then the effective annual risk free rate?
2. What would be a simple option strategy to exploit your conviction about stock price’s future movement? What is the most you can make on this position? When/ how much do you lose? Explain graphically and numerically
3. Can you replicate the put contract? What is the net cost of establishing the position now?