The price of a European call that expires in six months and has a strike price of $50 is $5. The
underlying stock price is $52, and a dividend of $1.00 is expected in three months. The term struc
is flat, with all risk-free interest rates being 10%.
a)
Interest Rate 10%
Underlying Stock Price $ 52.00
Dividend $ 1.00
Strike Price $ 50.00
Split $ 5.00
Stock Price $ 51.00
Strike Price $ 45.00
Price $ 2.45
b) If put sells for 0.5 then it is advisable to buy the put and go short on the synthetic put
P = C + X/(1 + risk free rate)n - S
so buy stock, sell call and go short on the risk free asset with value equal to strike price
Arbitrage profit 2.45
European Put Price 0.5
1.95
underlying stock price is $52, and a dividend of $1.00 is expected in three months. The term struc
is flat, with all risk-free interest rates being 10%.
a)
Interest Rate 10%
Underlying Stock Price $ 52.00
Dividend $ 1.00
Strike Price $ 50.00
Split $ 5.00
Stock Price $ 51.00
Strike Price $ 45.00
Price $ 2.45
b) If put sells for 0.5 then it is advisable to buy the put and go short on the synthetic put
P = C + X/(1 + risk free rate)n - S
so buy stock, sell call and go short on the risk free asset with value equal to strike price
Arbitrage profit 2.45
European Put Price 0.5
1.95
