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A European call option and a European put option on a stock both have a strike price of $45 and expire in 6 months. Currently, the call price is $10 and the put price is $5 in the market. The risk-free rate is 2% per annum, and the current stock price is $50. Identify the arbitrage opportunity open to the trader. All the interest rates are with continuous compounding.
a) Buy call, sell put, sell stock
b) Buy call, sell put, buy stock
c) Sell call, buy put, buy stock
d) Sell call, buy put, sell stock
The main advantage of deterministic models is that they
Maloney, Inc. has decided to sell 2,500 shares of stock. The bids received are as follows: Bidder A, quantity 500 price/share $23; Bidder B quantity 800 price/share; Bidder C quantity 1,000 price/share $21; Bidder D quantities 1,500 price/share $20; ..
Assume that the risk-free rate is 4.5% and that the market risk premium is 3%. What is the required rate of return on a stock with a beta of 1.2? What is the required rate of return on a stock with a beta of 1.1? What is the required return on the ma..
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