Question 1.You have the following information: S=52, X=50, T=1, r=0, C=5, P=5 Evaluating the situation from a Put-Call Parity framework, what steps would you take to implement an arbitrage strategy? (Points : 3.84)

a.Sell Call, Buy Put, Short Stock, Invest remainder b.Sell Call, Buy Put, Buy Stock, Borrow remainder c.Buy Call, Sell Put, Buy Stock, Borrow remainder d.Buy Call, Sell Put, Short Stock, Invest remainder e.Buy Call, Sell Put, Short Stock, Borrow remainder

Question 2.Using the information and the solution from the previous question (Q23), what would be the final arbitrage amount? (approximately) (Points : 3.84)

a.If S>X or SX then $7, if SX or SX then $3, if SX or S

Question 3.You have the following information: S=18, E=15, r=2%, t=3 (years), standard deviation=0.25 Using the Black-Scholes Model, calculate the approximate Call price (Points : 4)

a.$2.33 b.$5.10 c.$4.05 d.$1.59 e.$7.21

Question 4.You have the following information:

Put: X=$40, Premium=$4

Call: X=$50, Premium=$6

You bought the stock at $45

Scenarios: S=15, S=45, S=55

Given above information, please calculate the net payouts for a collar strategy for each different scenario.

(Points : 3.84)

a.-$3, $2, $7 b.-$30, $0, $10 c.-$28, $2, $12 d.-$4, $0, $6 e.$4, $0, -$6