Actuarial Outpost ASM Ninth Ed. Practice Exam 4 (33)
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#1
12-06-2009, 12:01 AM
 MrNez SOA Join Date: Jul 2009 Posts: 23
ASM Ninth Ed. Practice Exam 4 (33)

Curious if anyone noticed this... searched the thread and didn't see anything...

Question 33) You own two European call options each with an exercise price of Kc, and one European put option with an exercise price of Kp. Assume the following:
- Kp=Kc-20
- All three options have a common underlying asset and a common expiration date
- The price of the underlying asset upon expiration of the options St, is equal to 50.
- Kc<=St<=Kp
- The payoff of your option position upon expiration is 30.
Find the exercise price of the put, Kp.

Now I was taking this exam under test conditions, timed and what not, and came across this question and thought if Kp=Kc-20, how can Kp be greater than Kc? Stared at it for like 10 minutes and just skipped over it.
Noticed in the solution that they substituted Kp-20 in for Kc, so i'm assuming that condition was supposed to be Kp=Kc+20?
Just curious if anyone came across this and was like... wtf?

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