Price of Call option is 2.27Price of Put option is 20.45Is there an arbitrage opportunity in this market? Explain in detail Consider a put option on a stock that currently sells for £100, but may rise to £120 orfall to £80 after 1 year. The risk free rate of return is 10%, and the exercise price is £90.

In an option market if investor expects that share price will increase in near future then he will…

Answered: Consider a put option on a stock that…

Consider a put option on a stock that currently sells for £100, but may rise to £120 or fall to £80 after 1 year. The risk free rate of return is 10%, and the exercise price is £90.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 6P: Binomial Model The current price of a stock is 20. In 1 year, the price will be either 26 or 16. The...

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

Price of Call option is 2.27

Price of Put option is 20.45

Is there an arbitrage opportunity in this market? Explain in detail

Consider a put option on a stock that currently sells for £100, but may rise to £120 or
fall to £80 after 1 year. The risk free rate of return is 10%, and the exercise price is £90.

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