Question

In: Finance

Assume that the stock price is $56, call option price is $9, the put option price...

Assume that the stock price is $56, call option price is $9, the put option price is $5,   risk-free rate is 5%, the maturity of both options is 1 year , and the strike price of both options is 58.

An investor  can __the put option, ___the call option, ___the stock, and ______ to explore the arbitrage opportunity.  

A.

sell, buy, short-sell, lend
B.

buy, sell, buy, borrow
C.

sell, buy, short-sell, borrow
D.

buy, sell, buy, lend

Solutions

Expert Solution

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Assume the following for a stock and a call and a put option written on the...
Assume the following for a stock and a call and a put option written on the stock. EXERCISE PRICE = $20 CURRENT STOCK PRICE = $20 VARIANCE = .25 TIME TO EXPIRATION = 3 MONTHS RISK FREE RATE = 3% Use the Black Scholes procedure to determine the value of the call option and the value of a put.
A European call option and put option on a stock both have a strike price of...
A European call option and put option on a stock both have a strike price of $21 and an expiration date in 4 months. The call sells for $2 and the put sells for $1.5. The risk-free rate is 10% per annum for all maturities, and the current stock price is $20. The next dividend is expected in 6 months with the value of $1 per share. (a) describe the meaning of “put-call parity”. [2 marks] (b) Check whether the...
A European call option and put option on a stock both have a strike price of...
A European call option and put option on a stock both have a strike price of $21 and an expiration date in 4 months. The call sells for $2 and the put sells for $1.5. The risk-free rate is 10% per annum for all maturities, and the current stock price is $20. The next dividend is expected in 6 months with the value of $1 per share. (a) In your own words, describe the meaning of “put-call parity”. (b) Check...
Suppose the call price is $14.10 and the put price is $9.30 for stock option where...
Suppose the call price is $14.10 and the put price is $9.30 for stock option where the exercise price is $100, the risk free rate is 5 percent (continuously compounded), and the time to expiration is one year. Explain how you would create a synthetic stock position and identify the cost. Suppose you observe a $100 stock price; identify any arbitrage opportunity.
You obtain the following information concerning a stock, a call option, and a put option: Price...
You obtain the following information concerning a stock, a call option, and a put option: Price of the stock $42 Strike price (both options) $40 Price of the put $3 Expiration date three months You want to purchase the stock but also want to use an option to reduce your risk of loss. a) ?Do you need to purchase or sell the put option? b) What is the cash inflow or outflow from your position when you purchase your put...
A call option on a stock with a strike price of $60 costs $8. A put...
A call option on a stock with a strike price of $60 costs $8. A put option on the same stock with the same strike price costs $6. They both expire in 1 year. (a) How can these two options be used to create a straddle? (b) What is the initial investment? (c) Construct a table that shows the payoffs and profits for the straddle when the stock price in 3 months is $50, and $72, respectively. The table should...
Assume that a stock is selling at a price of $100. The 95 call option on...
Assume that a stock is selling at a price of $100. The 95 call option on the stock sells for $5 and the 105 put option sells for $8. What is the intrinsic and time value on the 95 call and $105 put? If the stock increases to $110, what will be the dollar and percentage return on the call option. What will be the return on the put option? Assume that the investor writes a call option on the...
Assume that a stock is selling at a price of $100. The 95 call option on...
Assume that a stock is selling at a price of $100. The 95 call option on the stock sells for $5 and the 105 put option sells for $8. What is the intrinsic and time value on the 95 call and $105 put? If the stock increases to $110, what will be the dollar and percentage return on the call option. What will be the return on the put option? Assume that the investor writes a call option on the...
Is a put option on the ¥ with a strike price in €/¥ also a call...
Is a put option on the ¥ with a strike price in €/¥ also a call option on the € with a strike price in ¥/€? Explain.
A. What is Price of a European Put option? B. Price of a European Call option?...
A. What is Price of a European Put option? B. Price of a European Call option? Spot price = $60 Strike Price = $44 Time to expiration = 6 months Risk Free rate = 3% Variance = 22% (use for volatility) Show steps/formula
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT