# Question

Suppose Hewlett-Packard (HPQ) stock is currently trading on the NYSE with a bid price of $28.00 and an ask price of $28.10. At the same time, a NASDAQ dealer posts a bid price for HPQ of $27.85 and an ask price of $27.95.

a. Is there an arbitrage opportunity in this case? If so, how would you exploit it?

b. Suppose the NASDAQ dealer revises his quotes to a bid price of $27.95 and an ask price of $28.05. Is there an arbitrage opportunity now? If so, how would you exploit it?

c. What must be true of the highest bid price and the lowest ask price for no arbitrage opportunity to exist?

a. Is there an arbitrage opportunity in this case? If so, how would you exploit it?

b. Suppose the NASDAQ dealer revises his quotes to a bid price of $27.95 and an ask price of $28.05. Is there an arbitrage opportunity now? If so, how would you exploit it?

c. What must be true of the highest bid price and the lowest ask price for no arbitrage opportunity to exist?

## Answer to relevant Questions

Consider a portfolio of two securities: one share of Johnson and Johnson (JNJ) stock and a bond that pays $100 in one year. Suppose this portfolio is currently trading with a bid price of $141.65 and an ask price of $142.25, ...How would your answer to Problem 16 change if the machine takes one year to build?Suppose you currently have $5000 in your savings account, and your bank pays interest at a rate of 0.5% per month. If you make no further deposits or withdrawals, how much will you have in the account in five years?Problem 44 is not very realistic because most retirement plans do not allow you to specify a fixed amount to contribute every year. Instead, you are required to specify a fixed percentage of your salary that you want to ...Your bank account pays interest with an EAR of 5%. What is the APR quote for this account based on semiannual compounding? What is the APR with monthly compounding?Post your question

0