Question

q 12

"You are evaluating European puts and calls with same strike price that are expring in six months on a certain stock. Your evaluation reveals that sum of call price and present value of strike equals $35.5; and sum of put price and current stock price equals to $37. Which positions do you need on the call, the put and stock for an arbitrage profit?"

"Buy the put, buy the stock and write the call" |
||

Write the call and buy the stock |
||

There is No arbitrage opportunity |
||

Buy the put and short-sell the underlying stock |
||

"Buy the call, write the put and short-sell the stock" |

Answer #1

For an arbitrage profit, | ||||

1) | Buy Call Option and Buy Risk Free Investment at Present Value of Strike Price | |||

2) | Short sell Shares and sell Put Option | |||

Arbitrage Profit will be | ||||

A. | Short Sale of Share and Sell of Put Option | $37.00 | ||

B. | Purchase of Call Option and Risk Free Investment | $35.50 | ||

Arbitrage Profit ($37 - $35.50) | $1.50 | |||

So Answer is |
||||

Buy the call, write the put and short-sell the
stock |
||||

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)...

The price of a European put that expires in six months and has a
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structure is flat, with all risk-free interest rates being 8%
(cont. comp.).
What is the price of a European call option on the same stock
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Explain in detail the arbitrage...

The strike price for a European call and put option is $56 and
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stock underlying the call and the put is $55 and the risk free rate
is 3% per annum based on continuous compounding. Identify any
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capitalize on that opportunity....

Consider a put and a call, both on the same underlying stock
that has present price of $34. Both options have
the same identical strike price of $32 and
time-to-expiration of 200 days. Assume that there
are no dividends expected for the coming year on the stock, the
options are all European, and the interest rate is
10%. If the put premium is $7.00
and the call premium is $12.00, which portfolio
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~~~In Excel~~~
Question 2. 1-month call and put price for
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Prevailing short-term interest rate is 2% per year.
a. Find current price of the stock using the put-call
parity.
b. Suppose another set of call and put options on the same stock
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price? Answer this by finding the amount of...

The price of a European call that expires in six months and has
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q 15
"A six month European
put with a strike price of $35 is available for $2.5.The underlying
stock price is $33 and stock does NOT pay dividends. The term
structure is flat, with all risk free interest rates being 8% for
all maturities. What is the price of a six month European call
option with a strike price of $35 that will expire in six months? "
"(Enter your answer in two decimals without $
sign)

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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
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