Tucker Inc. common stock currently trades for $90/share. 6-monthEuropean put options on the stock have an exercise price andpremium of $93 and $4, respectively. The annual risk free rate is2%. What should be the value of a 6-month European call option onthe stock with an exercise price of $93 according to put-callparity? Round intermediate steps to four decimals and your finalanswer to two decimals.
Suppose 6-month European call options with an exercise price of$93 actually have a market price of $2.15. Which of the followingstrategies could you employ to earn an arbitrage return?
- Short the market call, buy the stock, buy the put and short thepresent value of the exercise price at the risk-free rate.
- Buy the market call, short the stock, short the put and investthe present value of the exercise price at the risk-free rate.
- Short the market call, buy the stock, buy the put and investthe present value of the exercise price at the risk-free rate.
- Arbitrage is not possible.
- None of the above.
Find the arbitrage profit you could earn per call option.
