Explain the arbitrage opportunities

Reference no: EM132051283

Question: a) The price of a European call that expires in six months and has a strike price of $30 is $2. The underlying stock price is $29, and a dividend of $0.50 is expected in two months and again in five months. The continuously compounded interest rate is 10%. What is the price of a European put option that expires in six months and has a strike price of $30?

b) Explain the arbitrage opportunities in the earlier problem if the European put price is $3.

Reference no: EM132051283

Questions Cloud

Why does the price of the bond decline : Why does the price of the bond decline (for premium bonds) and increase (for discount bonds) as maturity nears? Be specific in referring.

Relevant cash flows-no terminal value : Relevant cash flows—No terminal value Central Laundry and Cleaners is considering replacing an existing piece of machinery with a more sophisticated machine.

The difference between limited and unlimited liability : What Is the difference between limited and unlimited liability, and why does this difference exist?

Explain the forces and changes a electron undergoes : Explain the forces and changes a electron undergoes as it forms an intramolecular bond with oxygen to form water molecule.

Explain the arbitrage opportunities : The price of a European call that expires in six months and has a strike price of $30 is $2. The underlying stock price is $29, and a dividend of $0.50.

What amount of helium gas occupies : Helium gas is the second most abundant in the universe. What amount of helium gas occupies 12.6 L at STP?

How would you respond to coleman request : You are negotiating a transaction for your client, Shark Corporation. How would you respond to Coleman's request

Discuss the role of the media in covering terrorist-related : This same coverage can serve as a weapon for terrorists in the form of a psychological weapon that instills fear in the public.

The public about resiliency and reactionary planning : With this information, the terrorist groups may alter tactics and/or strategies based upon their understanding of how the government will react to specific.

User Account

All Pages