Comparing the actual price with the synthetic price

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Consider the following information on put and call options on a stock: Call price, C0 = $4.50; Put price, P0 = $6.80; Exercise price, X = $70; Days to option expiration = 139; Current stock price, S0 = $67.32; Risk?free rate, r = 5 percent. (Assume 365 days per year in your calculations)

a) Use the put–call parity to calculate price of a synthetic bond.

b) Identify any mispricing by comparing the actual price with the synthetic price. What would you do to exploit this arbitrage opportunity?

Reference no: EM132030379

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