Suppose that you confront the following data for a certain non-dividend-paying stock: Stock Price $110 Call Price

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Suppose that you confront the following data for a certain non-dividend-paying stock:

Stock Price $110

Call Price (6-month maturity, X=$105) $15

Put price (6-month maturity, X=$105) $5

Risk-free interest rate 16% per year

a) Use these data in the put-call parity theorem to check if parity is violated.

b) Show how to exploit any mispricing by examining the immediate cash flow and cash flow in 6 months.

Posted Date: May 11, 2024 05:03 AM

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Suppose that you confront the following data for a certain non-dividend-paying stock: Stock Price $110 Call Price

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Expert Answer:

a Putcall parity theorem states that for European options Call Price Put Price Stock Price Present V... View the full answer

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