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
You borrow $75,000 for 30 years at 11% interest compounded annually. The value of the property is $100,000, PGI= $20,000, vacancy rates are 8%, and operating expenses are $81,
How long should you delay payment given the terms of your current suppliers? Prove your answer by relating the annualized cost of the discount to your investment or borrowin
Finance is a very challenging and rewarding field. It is exciting area because financial managers are given the responsibility to plan the future growth of the firm which can
A company's assets have a total book value is $163.2 million. The company has 8.3 million shares of common stock outstanding which are trading at $53 per share. They also have
Instead of accepting the contract, the player asks his agent to negotiate a contract which has a present value of $1 million MORE than that which has been offered. Moreover, t
Explore and discuss how dividend payments are accounted for; what signal(s) does the payment of dividends send to the investment community; and how the payment of dividends ad
Renfro Rentals has issued bonds that have a 11% coupon rate, payable semiannually. The bonds mature in 15 years, have a face value of $1,000, and a yield to maturity of 10.5%.
Current sales are $360,000, current assets $80,000, accounts payable $15,000, accruals $5,000, net profit margin of 5% with a 50% dividend payout. If I expect sales to incre