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
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Corporate Finance Core Principles and Applications
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford
3rd edition
978-0077905200
