Question

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.

Answer #1

This is a question of put call parity.

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 strike price for a European call and put option is $56 and
the expiration date for the call and the put is in 9 months. Assume
the call sells for $6, while the put sells for $7. The price of the
stock underlying the call and the put is $55 and the risk free rate
is 3% per annum based on continuous compounding. Identify any
arbitrage opportunity and explain what the trader should do to
capitalize on that opportunity....

A European put option on Tata Steel stock at the
strike price of Rs.440 with expiry of three months, is Rs. 30 with
risk-free interest rate of 7% per annum and the current price of
stock is Rs. 435. Identify the arbitrage opportunities open to a
trader if the put price is Rs. 40 or 20.

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?

The price of a European put option on a stock with a strike
price of $30.00 is $6.80. The stock price is $28.00, the
continuously compounded risk-free rate (all maturities) is 4% and
the time to maturity is one year. A dividend of $2.00 is expected
in three months. What is the price of a one-year European call
option on the stock with a strike price of $30.00?
Select one:
a. $7.22
b. $4.00
c. $6.98
d. $4.74

For a European call option and a European put option on the same
stock, with the same strike price and time to maturity, which of
the following is true?
A) When the call option is in-the-money and the put option is
out-of-the-money, the stock price must be lower than the strike
price.
B) The buyer of the call option receives the same premium as the
writer of the put option.
C) Since both the call and the put are risky...

For a European call option and a European put option on the same
stock, with the same strike price and time to maturity, which of
the following is true?
A) Before expiration, only in-the-money options can have
positive time premium.
B) If you have a portfolio of protected put, you can replicate
that portfolio by long a call and hold certain amount of risk-free
bond.
C) Since both the call and the put are risky assets, the
risk-free interest rate...

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?

Consider a European call option and a European put option, both
of which have a strike price of $70, and expire in 4 years. The
current price of the stock is $60. If the call option currently
sells for $0.15 more than the put option, the continuously
compounded interest rate is
3.9%
4.9%
5.9%
2.9%

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