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

Ask Question & Get Answers from Experts
Browse some more (Financial Management) Materials
What is the appropriate weight of debt? What is the appropriate weight of common equity? Describe the idea of "national banking." How is the system evolving today (and into th
For your business venture, evaluate the possibility of seed funding from venture capital funding, angel funding, SBA funding or other business alliances. Which source of seed
Pearson Motors has a target capital structure of 40% debt and 60% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 10%, and
Johnson Manufacturing, Inc. is considering several investments. The rate on Treasury bills is currently 7.5% and the expected return for the market is 13%. What should be th
Interest versus dividend income During the year just ended, Shering Distributors, Inc., had pretax earnings from operations of $490,000.  Calculate the firm’s tax on its opera
Assume an investment project that has 250,000 dollars of capital cost for purchasing some machines and 150,000 dollars for buying a piece of land at time zero. The project lif
Calculate the degree of operating leverage given the following information: sales of $25,000; variable costs of $15,000; and operating income of $16,000 for year 2. Your answe
Duggins Veterinary Supplies can issue perpetual preferred stock at a price of $52.50 per share with an annual dividend of $5.50 a share. Ignoring flotation costs, what is the