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The price of a European put that expires in six months and has a strike price of $100 is $3.59. The underlying stock price is $102, and a dividend of $1.50 is expected in four months. The term structure is flat, with all risk-free interest rates being 8% (cont. comp.).
a. What is the price of a European call option on the same stock that expires in six months and has a strike price of $100?
b. Explain in detail the arbitrage opportunities if the European call price is $6.1. How much will be the arbitrage profit?
c. Explain in detail the arbitrage opportunities if the European call price is $8.8. How much will be the arbitrage profit?
2. Do the definitions of current assets and current liabilities suggest a quick way of looking at the firm's ability to meet its financial obligations (pay its bills) over the near term? (Hint: Think in terms of ratios.)
HC2091 - Business Finance - What is the fundamental motivation behind portfolio theory? That is, what are people trying to achieve by investing in portfolios
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