Question
2. Arbitrage Using Options on Dividend-Paying Stock A stock currently sells for $90 and will pay a $5-dividend in year 1. The 2-year European call
2. Arbitrage Using Options on Dividend-Paying Stock
A stock currently sells for $90 and will pay a $5-dividend in year 1. The 2-year European call option on this stock has a strike price of $80. The call price is $9. The risk-free rate is 4% per annum. Is there an arbitrage? If so, find the arbitrage strategy and its cash flows.
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Real Estate Finance
Authors: John P. Wiedemer
8th Edition
0324142900, 9780324142907
