Question

A **European call option on a non-dividend-payment stock
with a strike price of $18 and an expiration date in one year costs
$3. The stock price is $20 and the risk free rate is 10% per
annum.Can u design an arbitrage scheme to expolit this
situation?**

Answer #1

We can design an arbitrage scheme by short-selling the stock as shown in the following screenshot (2 variations of the same strategy are described):

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A
European call option and put option on a stock both have a strike
price of $20 and an expiration date in three months. Both sell for
$3. The risk-free interest rate is 10 % per aunum, the current
stock price is $19 , and a $1 dividend is expected in one month.
identify the arbitrage oppotunity to a trader.

A
European call option and put option on a stock both have a strike
price of $20 and an expiration date in three months. Both sell for
$2. The risk-free interest rate is 5% per annum, the current stock
price is $25, and a $1 dividend is expected in one month. Identify
the arbitrage opportunity open to a trader.

A European call option and put option on a stock both have a
strike price of $25 and an expiration date in four months. Both
sell for $4. The risk-free interest rate is 6% per annum, the
current stock price is $23, and a $1 dividend is expected in one
month. Identify the arbitrage opportunity open to a trader.

The price of a European call option on a non-dividend-paying
stock with a strike price of $50 is $6. The stock price is $51, the
continuously compounded risk-free rate (all maturities) is 6% and
the time to maturity is one year. What is the price of a one-year
European put option on the stock with a strike price of $50?
a)$9.91
b)$7.00
c)$6.00
d)$2.09

A European call option on a stock with a strike price of $50 and
expiring in six months is trading at $14. A European put option on
the stock with the same strike price and expiration as the call
option is trading at $2. The current stock price is $60 and a $1
dividend is expected in three months. Zero coupon risk-free bonds
with face value of $100 and maturing after 3 months and 6 months
are trading at $99...

the price of a non-dividend-paying stock is $19 and the price of
a 3-month European call option on the stock with a strike price of
$20 is $1, while the 3-month European put with a strike price of
$20 is sold for $3. the risk-free rate is 4% (compounded
quarterly). Describe the arbitrage strategy and calculate the
profit.
Kindly dont forget the second part of the question

Consider a European call option and a European put option on a
non dividend-paying stock. The price of the stock is $100 and the
strike price of both the call and the put is $104, set to expire in
1 year. Given that the price of the European call option is $9.47
and the risk-free rate is 5%, what is the price of the European put
option via put-call parity?

A 1-month European call option on a non-dividend-paying-stock is
currently
selling for $3.50. The stock price is $100, the strike price is
$95, and the risk-free interest
rate is 6% per annum with continuous compounding.
Is there any arbitrage opportunity? If "Yes", describe your
arbitrage strategy using a table of cash flows. If "No or
uncertain", motivate your answer.

A
one-month European call option on a non-dividend-paying stock is
currently selling for$2.50. The stock price is $47, the strike
price is $50, and the risk-free interest rate is 6% per annum. What
opportunities are there for an arbitrageur?

1- A one-year European call option on Stanley Industries stock
with a strike price of $55 is currently trading for $75 per share.
The stock pays no dividends. A one-year European put option on the
stock with a strike price of $55 is currently trading for $100. If
the risk-free interest rate is 10 percent per year, then what is
the current price on one share of Stanley stock assuming no
arbitrage?
2- The current price of MB Industries stock...

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