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7. Stock ABC is trading for $19. The stock has a standard deviation on an annual basis of 40%. The risk free rate on a

7. Stock ABC is trading for $19. The stock has a standard deviation on an annual basis of 40%. The risk free rate on a continuously compounded basis is 5%.

a. What is the price of a call that expires in 126 days and has a strike price of 20?

b. What is the price of a put that expires in 126 days and has a strike price of 20?

c. If the call was currently trading for $1.90 could you generate arbitrage profits? If so, show all the steps you would take and calculate your profits.

d. What is delta of each option?

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