Derivatives Suppose the stock price is $31, the risk-free interest rate is 9% per year, the...

Derivatives

Suppose the stock price is $31, the risk-free interest rate is 9% per year, the price of a three-month European call option is $2.69, and the price of a 3-month European put option is $2.25. Both options have the strike price $29. Assume monthly compounding. Describe an arbitrage strategy and justify it with appropriate calculations. Please write your solution in complete sentences.

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ANSWER IN THE IMAGE ((YELLOW HIGHLIGHTED). FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

jeff jeffy answered 1 year ago

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