Stock ABC is trading at $43 and pays no dividends. Further, assume that the values of a

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Stock ABC is trading at $43 and pays no dividends. Further, assume that the values of a $ 50-strike European put and call are equal in price.

a. What is the six-month risk-free interest rate (based on continuous compounding)?

b. If the actual interest rate is 20% (based on continuous compounding), is there an arbitrage strategy? If so, what would you do to take advantage of it?

c. How much profit, if any, would you earn?

Related Book For answer-question

Global Investments

ISBN: 978-0321527707

6th edition

Authors: Bruno Solnik, Dennis McLeavey

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Posted Date: Apr 17, 2024 09:09 AM

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Stock ABC is trading at $43 and pays no dividends. Further, assume that the values of a

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Stock Option Parity and RiskFree Rate We can solve this problem using PutCall Parity which holds under certain assumptions including continuous compou... View the full answer

Global Investments

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