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What amount of risk-free profit could ian make per contract

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The current price of one share of JDV stock is 52. The stock does not pay dividends. The price of a one year put option on JDV with a strike price of 50 is 6.84. Ian Curtis notices that the price of a one year call option on JDV with a strike price of 50 is being quoted as 11.11. He feels that price is incorrect and that an arbitrage opportunity may exist.

The interest rate is 7.26%.

a. Describe the portfolio (including amounts of each instrument), Ian could construct to take advantage of his suspicion.

b. What amount of risk-free profit could Ian make per contract?

Reference no: EM133001083

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