6. A 4-month European call option on a dividend paying stock is selling for C = $4. So $54, K = $50. A dividend of $0.90 is expected in 2 months. r = .12. Assume continuous discounting. Are there opportunities for arbitrage? Explain and show these opportunities.

6. A 4-month European call option on a dividend paying stock is selling for C = $4. So $54, K = $50. A dividend of $0.90 is expected in 2 months. r = .12. Assume continuous discounting. Are there opportunities for arbitrage? Explain and show these opportunities.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 16P: Crisp Cookware’s common stock is expected to pay a dividend of $3 a share at the end of this year...

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6. A 4-month European call option on a dividend paying stock is selling for C = $4. So = $54,
K = $50. A dividend of $0.90 is expected in 2 months. r = .12. Assume continuous discounting. Are
there opportunities for arbitrage? Explain and show these opportunities.

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