Question

28)Lumba stock is priced at $65 and has a standard deviation of 30%. Three-month calls and puts with an exercise price of $60 are available. The calls have a premium of $7.27, and the puts cost $1.10. The risk-free rate is 5%. Since the theoretical value of the put is $1.525, you believe the puts are undervalued.

If you construct a riskless arbitrage to exploit the mispriced puts, your arbitrage profit will be ___.

Multiple Choice
$5.75
$0.42
$6.17
$0.96

Answer 1

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