Consider a stock currently priced at $80. In the next period, the stock can either increase by 30 percent or

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Consider a stock currently priced at $80. In the next period, the stock can either increase by 30 percent or decrease by 15 percent. Assume a call option with an exercise price of $80 and a risk-free rate of 6 percent. Suppose the call option is currently trading at $12. If the option is mispriced, what amount of riskless return can be earned using a riskless hedge?

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Question Posted: April 07, 2016 08:32:40