Q23-Q26 - An asset is trading at the price of $100, A(0) = $100, and the 3-month simple (add-on) risk-free rate is 4% per annum. In 3 months, the asset price can be $105 or $97. 23. Is there an arbitrage opportunity? (a) Yes (b) No (c) It depends on the probabilities (d) Not enough information is provided 24. What probabilities would make a risk-neutral investor indifferent between the 3-month risk-free investment versus investing in the above asset for 3 months? (a) (1/3,2/3) (b) (0.25, 0.75) (c) (0.625, 0.375) (d) (0.5, 0.5) 25. What is the approximate value of 3-month expiry call option with strike K = 100? (a) $5 (b) $3 (c) $2.50 (d) $2 26. How much of the underlying asset is needed in a replicating portfolio? (a) 10% (b) 25% (c) 50% (d) 62.5%