AstraZeneca plc (AZN) stock was trading at $45 on August 16, 2011 and the following options...

AstraZeneca plc (AZN) stock was trading at $45 on August 16, 2011 and the following options prices are available:

Sept 40 put - $1.50

Sept 50 put - $6

Sept 40 call - $6

Sept 50 call - $1

Consider a long box spread using AZN by buying a bull call spread and buying a bear put spread. Answer the following questions.

A) What is the cost of the bull call spread?

B) What is the cost of the bear put spread?

C) What is the value of the box spread on expiration date. Assume the expiration is on Sept 16?

D) If the risk-free annual interest rate is 4%, is there an arbitrage opportunity? If so, explain a strategy to profit from the market condition and show the amount of arbitrage profit from your strategy.

Expert Solution

jeff jeffy answered 1 year ago

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