A put is worth ($ 10) and matures in one year. A call on the same stock

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A put is worth \(\$ 10\) and matures in one year. A call on the same stock is worth \(\$ 15\) and matures in one year also. Both options are European. The put and call have the same exercise price of \(\$ 40\). The stock price is \(\$ 50\). The current price of a (risk free) discount bond (zero coupon bond) paying \(\$ 1\) that matures in one year is \(\$ 0.90\). How do you make risk free profits given these prices?

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Lectures On Corporate Finance

ISBN: 9789812568991

2nd Edition

Authors: Peter L Bossaerts, Bernt Arne Odegaard

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