You happen to be checking the newspaper and notice an arbitrage opportunity. The current stock price of Gougou is $20 per share and the one-year risk-free interest rate is 8%. A one-year put on Gougou with a strike price of $18 sells for $3.33, while the identical call sells for $7. Explain what you must do to exploit this arbitrage opportunity
You happen to be checking the newspaper and notice an arbitrage opportunity. The current stock price of Gougou is $20 per share and the one-year risk-free interest rate is 8%. A one-year put on Gougou with a strike price of $18 sells for $3.33, while the identical call sells for $7. Explain what you must do to exploit this arbitrage opportunity
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 22P
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You happen to be checking the newspaper and notice an arbitrage opportunity.
The current stock price of Gougou is $20 per share and the one-year risk-free interest
rate is 8%. A one-year put on Gougou with a strike price of $18 sells for $3.33, while
the identical call sells for $7. Explain what you must do to exploit this arbitrage
opportunity
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