The price of a non-dividend paying stock

Assignment Help Financial Management

Reference no: EM13882147

The price of a non-dividend paying stock is $18 and the price of a 3-month European call option on the stock with a strike price of $20 is $1. The risk-free is 4% per annum, continuously compounded. Please show your work.

a. What should be the price of a 3-month European put option with a strike price of $20? b. Explain what arbitrage opportunity exists if the European put option price is $2?

Reference no: EM13882147

Questions Cloud

Prepare an adjusted income statement and balance sheet : Prepare an adjusted Income Statement and Balance Sheet. Use a statutory tax rate of 35% to record income taxes payable and income tax expense - demonstrates the flexibility management has in determining Net Income under Generally Accepted Accounting..

Contemplating replacing-use the opportunity cost : Fluid Dynamics Company owns a pump that it is contemplating replacing. The old pump has annual operating and maintenance costs of $8,000/year: it can be kept for 4 years more and will have a zero salvage value at that time. The old pump can be traded..

Which will you use as the regressand : Plot the CPI on the vertical axis and the WPI on the horizontal axis. A priori, what kind of relationship do you expect between the two indexes? Why?

Set up a spreadsheet for bc sensitivity analysis : Set up a spreadsheet for B/C sensitivity analysis and determine if option 1, option 2 or the do-nothing option is selected by each of the three engineers.

The price of a non-dividend paying stock : The price of a non-dividend paying stock is $18 and the price of a 3-month European call option on the stock with a strike price of $20 is $1. The risk-free is 4% per annum, continuously compounded. What should be the price of a 3-month European put ..

What is the yield to maturity for these bonds : Atlantis Fisheries issues zero coupon bonds on the market at a price of $415 per bond. Each bond has a face value of $1,000 payable at maturity in 17 years. What is the yield to maturity for these bonds?

The term commonly used for a chain of amino acids 100 units : Normal 0 false false false EN-US X-NONE X-NONE The term commonly used for a c..

What is the bonds nominal yield to call : Cable Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semi annual payments, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of $1,120. What is th..

User Account

All Pages