+1-415-670-9189
info@expertsmind.com
Is there an arbitrage profit opportunity here
Course:- Financial Management
Reference No.:- EM13891882




Assignment Help
Assignment Help >> Financial Management

Suppose that you noticed the following prices: P=$48; S=$4; X=$50, for a one year European put option.

The simple risk-free interest rate is 10% per year. Is there an arbitrage profit opportunity here? Yes or no?

If yes, how would you exploit it? If no explain why not.

PS: In all questions above X = the exercise price of the options, C = call premium, P = put premium

please show detailed answer




Put your comment
 
Minimize


Ask Question & Get Answers from Experts
Browse some more (Financial Management) Materials
You purchased a zero-coupon bond one year ago for $277.33. The market interest rate is now 8 percent. Assume semiannual coumpounding periods. If the bond had 17 years to matur
KADS, Inc., has spent $450,000 on research to develop a new computer game. The firm is planning to spend $250,000 on a machine to produce the new game. Shipping and installati
An apartment building with an adjusted basis of $500,000 was destroyed by a tornado on April 30, 2015. On May 10, 2015, the insurance company paid the owner $695,000. The owne
A bond has a annual coupon rate of 9%. Its par value is $1,000 and coupon payments are made semi-annually. The bond matures in 20 years. What is today’s value of the bond if i
The 1-year interest rate is 7% in the U.S. and 3% in Japan. How much would the yen have to appreciate for a U.S. investor to get the same return on both U.S. and Japanese inve
At the end of 2011, the value of my savings account was $20,000. Over the next three years, the rates of return on the account were as shown below. How much was in the account
You plan to buy a studio apartment by taking a 30-year mortgage loan of $200,000 from a local bank, with charges on APR of 4.8%. The mortgage loan requires monthly payments. H
You buy a share of stock, write a one-year call option with X = $20, and buy a one-year put option with X = $20. Your net outlay to establish the entire portfolio is $18.60. W