51.25 and $6. three months.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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The prices of European call and put that expire in six months with strike price of 80 are currently
selling for $1.25 and $6.0, respectively. The underlying stock price is $75, and a dividend of $5 is
expected in three months. The risk-free interest rate is 4.0%. Is there any arbitrage opportunity? If yes,
how to realize profit and how much to be realized?
Transcribed Image Text:The prices of European call and put that expire in six months with strike price of 80 are currently selling for $1.25 and $6.0, respectively. The underlying stock price is $75, and a dividend of $5 is expected in three months. The risk-free interest rate is 4.0%. Is there any arbitrage opportunity? If yes, how to realize profit and how much to be realized?
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