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GPT group is an Australian real estate investment trust, with shares currently trading at $6.35 (assume...

GPT group is an Australian real estate investment trust, with shares currently trading at $6.35 (assume this is the stock price at time 0). Consider a European call and European put on this stock, both with strike price $6.25 and the same maturity date; the call is currently selling for $0.21, and the put for $0.11.

(a) Assuming put-call parity holds, what is the present value of the strike? Given this, what is the return on a risk-free investment over this time period (i.e., R)?

(b) Construct a cash flow table where, at time zero, you short sell one call, buy one put, buy one share and borrow some money (so that your total cash flow at this time is 0). Construct subsequent cash-flow table(s) that resolve this investment at maturity.

(c) Is there an arbitrage opportunity here?

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jeff jeffy answered 6 months ago
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