QUESTION 10 What are the trades that you need to execute in order to profit from the arbitrage opportunity? Sell the call, buy the put, short the stock and invest $98.5 for 5 months at 3%. Buy the call, sell the put, buy the stock and borrow $98.5 for 5 months at 3%. O Buy the call, sell the put, short the stock and invest $98.5 for 5 months at 3%. Sell the call, buy the put, buy the stock and borrow $98.5 for 5 months at 3%. No arbitrage profit exists because the call is properly valued. OUES TION
QUESTION 10 What are the trades that you need to execute in order to profit from the arbitrage opportunity? Sell the call, buy the put, short the stock and invest $98.5 for 5 months at 3%. Buy the call, sell the put, buy the stock and borrow $98.5 for 5 months at 3%. O Buy the call, sell the put, short the stock and invest $98.5 for 5 months at 3%. Sell the call, buy the put, buy the stock and borrow $98.5 for 5 months at 3%. No arbitrage profit exists because the call is properly valued. OUES TION
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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Transcribed Image Text:S2.9978
QUESTION 10
What are the trades that you need to execute in order to profit from the arbitrage opportunity?
O Sell the call, buy the put, short the stock and invest $98.5 for 5 months at 3%.
O Buy the call, sell the put, buy the stock and borrow $98.5 for 5 months at 3%.
O Buy the call, sell the put, short the stock and invest $98.5 for 5 months at 3%.
O Sell the call, buy the put, buy the stock and borrow $98.5 for 5 months at 3%.
O No arbitrage profit exists because the call is properly valued.
QUESTION 11
6.6
A European put option with strike $100 expiring in 5 months is priced at $3.15. The underlying is a dividend paying stock, currently priced at
$103.55. The stock is expected to pay dividends of $0.85 in 2 and 6 months. The risk-free rate is 3% per year. What is the price of a 5 month
European call option with strike $100?
O $4.6035
O $7.0965
O $3.7469
O $5.4409
O $1.8337
6,67 po
QUESTION 12
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