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What are the transactions to be done today

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Reference no: EM132964121

Question - Suppose the price of a non-dividend-paying stock is $19 now and the price of a four-month European call option in this stock with a strike price of $20 is $1. The risk-free interest rate is 8% per annum.

a. What is the price of a four-month European put option in this stock with a strike price of $20 based on put-call parity?

b. If this put option is actually sold for $1, is there an arbitrage opportunity? What are the transactions to be done today? How much is the immediate profit? What are the possible transactions to be done at maturity?

Reference no: EM132964121

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