Question
The price of a nine-month European call option on a stock with a strike price of $100 is $20. The stock price is $110, the
The price of a nine-month European call option on a stock with a strike price of $100 is $20. The stock price is $110, the nine-month risk-free rate is 4%. The stock pays no dividends.
The price of a nine-month European put option on the stock with a strike price of $100 is $5.
a.) Explain how to execute an arbitrage in the above situation.
b.) Calculate the arbitrage profit.
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Foundations of Finance The Logic and Practice of Financial Management
Authors: Arthur J. Keown, John D. Martin, J. William Petty
8th edition
132994879, 978-0132994873
