Identify the appropriate arbitrage opportunity

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1. You have discovered that when the required rate of return on a bond you own fell by 0.25 percent from 9.75 percent to 9.50 percent, the fair present value rose from $965 to $985. What is the duration of this annual coupon bond?

2. Suppose that the current stock price is $55, the exercise price is $50, the risk free interest rate is 6%, and the quoted call price is $2 for a 6-month European call option. Identify the appropriate arbitrage opportunity and show that the appropriate arbitrage strategy works.

Reference no: EM132049743

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