Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Advanced Finance

Authors: Michael Fardon

1st Edition

1872962319, 1872962173, 978-1872962313, 978-1872962177

More Books

Students also viewed these Finance questions