Question
Adam Smith is a portfolio manager with Point72 Investments, a U.S.-based asset management firm. Smith is considering using options to enhance portfolio returns and control
Adam Smith is a portfolio manager with Point72 Investments, a U.S.-based asset management firm. Smith is considering using options to enhance portfolio returns and control risk. He asks his junior analyst, Tommy Hilfiger, to help him. Hilfiger collected the current market prices and data of selected instruments related to Lotus stock in the following Table.
European call option on Lotus stock- $8
European put option on Lotus stock-$8
Lotus stock price-$70
Time to expiration of options in month-6
Exercise price of options-$70
Risk Free rate-10%
Dividend to be paid in 6 months- $1.50
According to the table, What will be the arbitrage profit per share without considering the transaction cost? (use this put call parity for the calculation: c + D + Ke -rT = p + S0)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Financial Modeling
Authors: Simon Benninga, Tal Mofkadi
5th Edition
0262046423, 9780253337825
