Suppose that you noticed the following prices: C=$12; S-$60; X-$50, for a one year European call option. The simple risk-free interest rate is 10% per year. Is there an arbitrage profit opportunity here? Yes or no? If yes, how would you exploit it? If no, explain why not. PS: In all questions above X denotes the exercise price of the options, C-call premium, P-put premium, and S-stock price.
Suppose that you noticed the following prices: C=$12; S-$60; X-$50, for a one year European call option. The simple risk-free interest rate is 10% per year. Is there an arbitrage profit opportunity here? Yes or no? If yes, how would you exploit it? If no, explain why not. PS: In all questions above X denotes the exercise price of the options, C-call premium, P-put premium, and S-stock price.
Chapter11: Managing Transaction Exposure
Section: Chapter Questions
Problem 35QA
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8- Suppose that you noticed the following prices: C=$12; S-$60; X-$50, for a one year European call option. The simple risk-free interest rate is 10% per year. Is there an arbitrage profit opportunity here? Yes or no? If yes, how would you exploit it? If no, explain why not.
PS: In all questions above X denotes the exercise price of the options, C-call premium, P-put premium, and S-stock price.
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