What is arbitrage strategy

Assignment Help Finance Basics
Reference no: EM132685952

A stock currently sells for $31/share. A 3-month European call option on this stock with a strike price of $30/share has a premium of $3/share. A 3-month European put option on the same stock with a strike price of $30/share has a premium of $2.25/share. Assume a 10% annual continuously compounded risk-free interest rate. Is there any arbitrage opportunities exist? If so, what is your arbitrage strategy? What is your arbitrage profit in three months? Please show all your cash flows from today as well as at the time of the maturity from your arbitrage strategy.

Reference no: EM132685952

Questions Cloud

Discuss decreasing medications errors : Independent and dependent variables are essential to any evidence based practice project. An independent variable is something that you can change.
What is the value of the inheritance today : You will receive an inheritance of $500,000 in 20 years on your 40th birthday. What is the value of the inheritance today if the discount rate is 10%?
Assignment on proactive management : Proactive Management. Operating exposures can be partially managed by adopting operating or financing policies that offset aticipated foregin exhcange exposures
Explain at least one version of social contract theory : Explain the idea that society should be based on virtue by discussing Confucius, Plato, and /or Aristotle. Explain at least one version of social contract.
What is arbitrage strategy : A stock currently sells for $31/share. A 3-month European call option on this stock with a strike price of $30/share has a premium of $3/share. A 3-month Europe
Prepare a variable costing income statement : Prepare a variable costing income statement showing the contribution margin and income from operations for the Fall 2012 term
What is the equivalent rate with continuous compounding : An interest rate is 6% per annum with quarterly compounding. What is the equivalent rate with continuous compounding?
Designing health promotion program : You have been designing a health promotion program that targets the most significant health problem (Cancer)within your community
What is the return on equity-lee sun : Lee Sun's has sales of $4,150, total assets of $3,850, and a profit margin of 4 percent. The firm has a total debt ratio of 40 percent.

Reviews

Write a Review

Finance Basics Questions & Answers

  Using the put-call-parity relationship

Using the put-call-parity relationship what is the position that is sure to generate positive profits.

  What happens if the stock falls by one dollar

Show how the hedge works by explaining what happens if the stock falls by one dollar.

  Find the approximate quartiles of the distribution

Use Table to find the approximate quartiles of the distribution of the number of cigarettes smoked per day for the mothers in the CHDS who smoked.

  How much money will joe wife receive when she gets her share

As you continue your discussions, let's review another example. What happens to the TVM Model if a person who takes out a 5-year car loan is really planning on paying the loan off in 3 years?

  Proposal estimated that variable cost

The team developing the proposal estimated that variable cost and sales volume may each turn out to be as much as 10% higher or 10% lower than the initial estimate. To complete this assignment, you are to  submit  a four to five page paper  that i..

  Record acceptance of note receivable for terrell-associate

On March 1, Terrell & Associates provides legal services to Whole Grain Bakery regarding some recent food poisoning complaints. Legal services total $10,000.

  What is the annual value of the depreciation tax shield

The initial investment will require $96,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 6-year life of the project. The company has a marginal tax rate of 32 percent. What is the annual val..

  What happens if companies avoid change

What happens if companies avoid change? Obviously I know and understand that if companies do not change with customers preferences

  Discuss how interact systems would expect to fare

A VC is considering providing the additional $5 million. What type of fund (stage specialization, industry focus, etc.) would you approach? In what part of their investing cycle would you hope to approach them? Discuss how Interact Systems would expe..

  What is the yield on this 5-year corporate bond

What is the yield on this 5-year corporate bond? Round your answer to two decimal places.e your question here.

  What is the npv of the project

Suppose your required return on the project is 9 percent and your pretax cost savings are $193,000 per year. What is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) NPV $ Requi..

  Net working capital associated with a project

Explain why managers consider changes in net working capital associated with a project to be cash inflows or outflows rather than the absolute level of working

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd