You gather the following information from the Wall Street Journal: Intel's stock is

selling for $17, the risk-free rate is 3% and a put option on Intel is selling for $4.00

matures in one year and has an exercise price of $20.

a. Calculate the equilibrium value of a call option on Intel that has an

exercise price of $20 and matures in one year.

b. You observe in the WSJ that the above call option is selling for $1.25. Is

the market in equilibrium? If not, then create a pure arbitrage. (Hint to be

a pure arbitrage you must show that there was zero net investment and a

guaranteed profit.)

c. You observe in the WSJ that the above call option is selling for $2.00. Is

the market in equilibrium? If not, then make pure arbitrage. (Hint to be

a pure arbitrage you must show that there was zero net investment and a

guaranteed profit.)