Question

Suppose Big Electronics’ stock price is currently $70. A
six-month European call option on the stock with exercise price of
$70 is selling for $6.41. The risk free interest rate is $7%.

What is the six-month European put option on the same stock with
exercise price of $70 if there is no arbitrage?[x] (sample answer:
$5.40)

Answer #1

We can compute Put option price using Put-Call parity equation:

where,

C = Call price

X = Strike price

S = Stock price

P = Put Price

r = risk free rate

t = time to maturity

We can rewrite above equation:

The price of a non-dividend paying stock is $45 and the
price of a six-month European call option on the stock with a
strike price of $46 is $1. The risk-free interest rate is 6% per
annum. The price of a six-month European put option is $2. Both put
and call have the same strike price. Is there an arbitrage
opportunity? If yes, what are your actions now and in six months?
What is the net profit in six months?

Suppose that a 6-month European call A option on a stock with a
strike price of $75 costs $5 and is held until maturity, and
6-month European call B option on a stock with a strike price of
$80 costs $3 and is held until maturity. The underlying stock price
is $73 with a volatility of 15%. Risk-free interest rates (all
maturities) are 10% per annum with continuous compounding.
Use put-call parity to explain how would you construct a
European...

A six-month European call option's underlying stock price is
$86, while the strike price is $80 and a dividend of $5 is expected
in two months. Assume that the risk-free interest rate is 5% per
annum with continuous compounding for all maturities.
1) What should be the lowest bound price for a six-month
European call option on a dividend-paying stock for no
arbitrage?
2) If the call option is currently selling for $2, what
arbitrage strategy should be implemented?
1)...

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 European put option is currently worth $3 and has a strike
price of $17. In four months, the put option will expire. The stock
price is $19 and the continuously compounding annual risk-free rate
of return is .09. What is a European call option with the same
exercise price and expiry worth? Also, given that the price of the
call option is $5, show how is there an opportunity for
arbitrage.

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?

(a) What is a lower bound for the price of a 6-month European
call option on a nondividend-paying stock when the stock price is
$50, the strike price is $48, and the risk-free interest rate is 5%
per annum? (b) What is a lower bound for the price of a 2-month
European put option on a nondividend-paying stock when the stock
price is $70, the strike price is $73, and the risk-free interest
rate is 8% per annum?

. A stock is currently selling for $20.65. A 3-month
call option with a strike price of $20 has an
option premium of $1.3. The risk-free rate is 2 percent and the
market rate is 8 percent. What is the option premium on a 3-month
put with a $20 strike price? Assume the options
are European style.

The price of a European call that expires in six months and has
a strike price of $28 is $2. The underlying stock price is $28, and
a dividend of $1 is expected in 4 months. The term structure is
flat, with all risk-free interest rates being 6%. If the price of a
European put option with the same maturity and strike price is $3,
what will be the arbitrage profit at the maturity?

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.

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