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ZAZ stock is currently trading at $163 per share. A dividend of $1.47 per share is...

ZAZ stock is currently trading at $163 per share. A dividend of $1.47 per share is expected to be paid on the stock in two months. A three month European put option with $165 strike on ZAZ is trading at $1 in the options market.

1. Does an arbitrage opportunity exist regarding securities markets for T-Bills, ZAZ stock and this put option? Explain

2. Completely specify a set of trades now that exploit the arbitrage opportunity.

3. Compute the profit of your arbitrage trades specified in section 2 at the time of option expiration for the following terminal prices of ZAZ at $160 and $170.

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jeff jeffy answered 1 year ago
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