Question
Given the following data as of the close of trading on 10/26/18: Quest Diagnostics (DGX): 91.47 T-bill: Asked 2.28, Days to Maturity 84 Options on
Given the following data as of the close of trading on 10/26/18:
Quest Diagnostics (DGX): 91.47
T-bill: Asked 2.28, Days to Maturity 84
Options on DGX: expire January 18, 2019
c | X | p |
23.7 | 70 | 0.35 |
17.5 | 75 | 0.55 |
12.9 | 80 | 1 |
8.7 | 85 | 1.95 |
5.2 | 90 | 3.4 |
2.55 | 95 | 6.1 |
1.1 | 100 | 9.7 |
0.45 | 105 | 14.2 |
Continue to assume that the call option struck at $80 trades at a premium of $11.00. This time, take the following positions: (1) buy the call; (2) short the stock; (3) invest in the T-bill at the risk-free rate. Show the value of these positions at expiration. Fill out the following table and show you make arbitrage profit.
Position | Cash Flow Today | Expiration, DGX < 80 | Expiration, DGX > 80 |
Buy call | -11 | ||
Short DGX | +91.47 | ||
Invest in T-bill | -80.47 | ||
TOTAL | 0 |
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