Question
Given the following information concerning European options on a non-dividend paying stock: Call price $4.00 Put price $3.10 Strike price $30.00 Time to expiry 3
Given the following information concerningEuropeanoptions on a non-dividend paying stock:
Call price
$4.00
Put price
$3.10
Strike price
$30.00
Time to expiry
3 months
Stock price
$31.00
Risk free rate
6% p.a. (continuously compounded)
Show that put-call parity is violated.Use the table below to indicate the action that is required to earn an arbitrage profit.Based on one stock, calculate the arbitrage profit available.
Action at t=0
(Circle choice)
Cashflow
Call
buy/sell
Put
buy/sell
Stock
buy/sell
Cash
borrow/invest
Action at t=3 months
If Stock price < $30
If Stock price > $30
Arbitrage profit
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
Corporate Finance Core Principles and Applications
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford
3rd edition
978-0077971304, 77971302, 978-0073530680, 73530689, 978-0071221160, 71221166, 978-0077905200
