Find arbitrage opportunity

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1. You think the price of GM stock is going to rise. In order to make money, you could either sell a call option on GM stock, or buy a put option on GM stock. State if this is true/false statement. Explain your answer.

2. Statement 1. An option contract can be used to speculate in the market. Statement 2. An option contract can be used to hedge risk.

3. An American put option, with an exercise price of $15, sells for $7.50; the stock price is $6 presents an arbitrage opportunity. (Assume no transaction costs and any option can be exercised immediately). Explain your answer.

Reference no: EM133005064

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