The option market does not allow for arbitrage, and the price of stock ZZ is $100....
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The option market does not allow for arbitrage, and the price of stock ZZ is $100. The price of a European put option written on ZZ with a strike of $100 is $10. The price of a European put with the same maturity written on ZZ with a strike of $50 is: (1) lower than $5 (2) equal to $5 (3) Ihigher than $5 (4) we can't tell (5) none of the above Do NOT try to use any involved calculation, and certainly NOT the Black-Scholes formula (note that we are not given several of its inputs). Just pointing to one of the five given answers, even if correct, will NOT count. We want to see your logic. You may support this logic with a picture. The option market does not allow for arbitrage, and the price of stock ZZ is $100. The price of a European put option written on ZZ with a strike of $100 is $10. The price of a European put with the same maturity written on ZZ with a strike of $50 is: (1) lower than $5 (2) equal to $5 (3) Ihigher than $5 (4) we can't tell (5) none of the above Do NOT try to use any involved calculation, and certainly NOT the Black-Scholes formula (note that we are not given several of its inputs). Just pointing to one of the five given answers, even if correct, will NOT count. We want to see your logic. You may support this logic with a picture.
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