Question No.35 ARBITRAGE UNDER PUT CALL PARITY The following table provides the price of option on equity share of X Itd. and Y Itd. The risk free interest is 9%.you as a financial planner are required to spot any mispricing in the quotations of options premium and stock prices? Suppose, if you find any such mispricing then how you can take advantage of this pricing position. U/Aset SP matnily CallPare PutPsce t60 lo0 $6 4 X lkd share lo0 80 26 94d shase

Question No.35 ARBITRAGE UNDER PUT CALL PARITY The following table provides the price of option on equity share of X Itd. and Y Itd. The risk free interest is 9%.you as a financial planner are required to spot any mispricing in the quotations of options premium and stock prices? Suppose, if you find any such mispricing then how you can take advantage of this pricing position. U/Aset SP matnily CallPare PutPsce t60 lo0 $6 4 X lkd share lo0 80 26 94d shase

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 3Q

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Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

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per share?
C.
If the call has a market value of $5 and market price of the stock is $12 per
share, what is the value of put?
TI
Question No.35 ARBITRAGE UNDER PUT CALL PARITY
The following table provides the price of option on equity share of X Itd. and Y Itd.
The risk free interest is 9%.you as a financial planner are required to spot any
mispricing in the quotations of options premium and stock prices? Suppose, if you
find any such mispricing then how you can take advantage of this pricing position.
U/ASset
SP
matnily
CallPate
PUtPoice
t60
lo0
56
4
X ltd share
loo
80
26
9d shate
Ans.:(i) Advantage using 6 months call and put3DRs.12.97 (ii) Advantage using 3 months
call and put = Rs.2.29
215

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