[Continuing from the above question] A 3-month European Put option on a non-dividend paying stock is currently selling at $3.00. The stock price is $35. The exercise price is $40, and the risk-free rate is 4% per annum. Assume the fair price is more than $3,00. So, there is a violaion of Lower Bound European put PV (X) - S What would an arbitrageur make right now?
[Continuing from the above question] A 3-month European Put option on a non-dividend paying stock is currently selling at $3.00. The stock price is $35. The exercise price is $40, and the risk-free rate is 4% per annum. Assume the fair price is more than $3,00. So, there is a violaion of Lower Bound European put PV (X) - S What would an arbitrageur make right now?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question 23
[Continuing from the above question]
A 3-month European Put option on a non-dividend paying stock is currently selling at $3.00.
The stock price is $35. The exercise price is $40, and the risk-free rate is 4% per annum.
Assume the fair price is more than $3,00. So, there is a violaion of Lower Bound European put: p >
PV (X) - S
What would an arbitrageur make right now?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F31ee3e17-d415-40cf-a696-2490deaf542a%2F2a06f3fe-6adf-4ad5-ade4-78e0a6fee513%2F9gepxwc_processed.jpeg&w=3840&q=75)
Transcribed Image Text:0
Question 23
[Continuing from the above question]
A 3-month European Put option on a non-dividend paying stock is currently selling at $3.00.
The stock price is $35. The exercise price is $40, and the risk-free rate is 4% per annum.
Assume the fair price is more than $3,00. So, there is a violaion of Lower Bound European put: p >
PV (X) - S
What would an arbitrageur make right now?
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