What is the arbitrage opportunity and what is the profit

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Reference no: EM132036571

Acme Corp. is currently trading at $52 per share. Assume the investor buys a put with a strike price of $50 for $1.08 and buys a call for $4.57 with a strike price of $50.

(a) Draw the profit and loss diagram for this strategy (just the options) as a function of the stock price at expiration. In that graph label BOTH the maximum loss and maximum gain possible.

(b) Both options expire in one year and risk free rate is 5 percent. What is the arbitrage opportunity, and what is the profit?

Reference no: EM132036571

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