What is the arbitrage opportunity

Assignment Help Finance Basics

Reference no: EM132179996

Question - Simple arbitrage for options

Fisher and Paykel shares are trading at $14.90 per share. In four months time, they will pay a 20 cent dividend. Interest rates (compounded continuously) are 2% per annum. A European put option is trading with strike price $15.50, maturing in 6 months time.

1. If the put option has a price of 63 cents, what is the arbitrage opportunity?

2. A European call option with strike price $15.50 and maturity in 6 months trades at 17 cents. What must the price of the put option be to avoid arbitrage opportunities? How would you trade if the put's price was $1?

Reference no: EM132179996

Questions Cloud

Value the bonds as a combination of bond and options : The proposed structure of the bonds is given in Exhibit 9 of the case Which is less than Wells Fargo would have paid to issue non-convertible floating-rate debt

Explain the lawmaking process in detail : For this week's project, you'll answer three questions related to your opportunity as a nurse and an advocate. The first two questions relate to influencing.

What are two potential problems with skinny plans : RMI 2101: Who are the individuals most likely to choose a "skinny plan"? How will this impact the Affordable Care Individual Market?

Why did great britain refused to join the eurozone nations : Why did Great Britain refused to join the Eurozone nations? Was that a smart decision?

What is the arbitrage opportunity : Fisher and Paykel shares are trading at $14.90 per share. If the put option has a price of 63 cents, what is the arbitrage opportunity

Example of pleading : Which of the following is an example of a pleading? Which of the following is NOT a form of discovery?

What were some of the contributions of steve jobs : What were some of the contributions of Steve Jobs as an entrepreneur towards apple?

Assignments and delegation of contracts : What are assignments and delegation of contracts and what rights and obligations do they confer? Provide an example of each?

Describe the effect of extremely low birth weight babies : Describe the effect of extremely low birth weight babies on the family and community. Consider short-term and long-term impacts, socioeconomic implications.

User Account

All Pages