Reference no: EM133002446
1. Which of the statements below is correct?
a.A risk-neutral investor will pay the same price under risk-neutral probability as a risk-averse investor would pay under physical probability.
b.A risk-neutral investor will pay a lower price under risk-neutral probability than a risk-averse investor would pay under physical probability.
c.A risk-neutral investor will pay the same price under physical probability as a risk-averse investor would pay under risk-neutral probability.
d.A risk-neutral investor will pay a higher price under risk-neutral probability than a risk-averse investor would pay under physical probability.
2. S&P 500 Index is at 2780. A European June 21, 2020 SPX call option struck at 2500 is trading at $326.94. An identical put is trading at $35.15. A T-bill with 200 days to maturity (same time as option expiration) is quoted at a yield of 2.46. Which of the following arbitrage strategies will be profitable?
a. Write the call, buy the put, buy the index, borrow at the risk-free rate
b. Buy the call, write the put, buy the index, borrow at the risk-free rate
c. Write the call, buy the put, short the index, invest at the risk-free rate
d. Buy the call, write the put, short the index, invest at the risk-free rate
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Arbitrage strategies will be profitable
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