A stock is currently selling for $30 and is expected to pay a dividend of...
80.2K
Verified Solution
Link Copied!
Question
Finance
A stock is currently selling for $30 and is expected to pay a dividend of $2.50 in two months. At-the-money European call and put options with an expiration date of three months are both selling for $1. The continuously compounded risk-free rate is 5% per annum.
a) Using put-call parity, identify the arbitrage opportunity and describe the transactions a trader would have to carry out to make a riskless profit
b) Calculate the present value of the profit the trader would earn, assuming that at the maturity date of the options the stock price goes to (i) $31 and (ii) $29.
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
