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Find adjusted intrinsic value of the 3-month call option

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Reference no: EM132828245

Netflix Inc. (NFLX) currently trades for $500 a share. A 3-month at-the-money call option on NFLX trades for $25. All options are European and NFLX pays no dividends. The interest rate is 1% with continuous compounding.

a. What is the adjusted intrinsic value of the 3-month call option?

b. What is the no-arbitrage price of a 3-month at-the-money put option on NFLX?

c. If the put option in (b) is trading for $24, is there an arbitrage opportunity and if so, what securities would you buy and/or sell to take advantage of it?

Reference no: EM132828245

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