Consider a simple financial model with two times, t = 0, 1, a single stock, S, which pays no dividends, and a one period interest rate r = .10. The initial price per share of the stock is S0 = $30. Consider a contract that requires it’s owner to receive one share of stock in exchange for a payment of K at time t = 1
1) What is the value of such a contract at t = 0 if K = $35? If K = $25?
2) Find the payment K that makes the value of the contract at t = 0 equal to zero.