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A stock is trading at $40, and one-year options are available with a strike price of...

A stock is trading at $40, and one-year options are available with a strike price of $35. The put option costs $2 and the call option costs $7.41. The risk-free rate is 3.5%. What must be the dividend rate of the stock in this situation?

If all of the information above were the same except you found someone who would trade the call option at a price of $5, what four transactions would you enter to make an arbitrage profit? (You do not need to calculate the profit.)

(N0 EXCEL WORK PLEASE. PLEASE SHOW STEP BY STEP WITH FORMULA)

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Answer #1

Above answer is self explanatory.

Assumptions hold good.

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