An American call option is written on a stock whose price today is S = 50. The

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An American call option is written on a stock whose price today is S = 50. The exercise price of the call is X = 45.

a. If the call price is 2, explain how you would use arbitrage to make an immediate profit.

b. If the option is exercisable at time T = 1 year and if the interest rate is 10%, what is the minimum price of the option? Use Proposition 1.

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Financial Modeling

ISBN: 9780262027281

4th Edition

Authors: Simon Benninga

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Question Posted: Nov 03, 2020 05:48 AM

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An American call option is written on a stock whose price today is S = 50. The

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Answers a An American call option can be exercised at any time Since the spot p...View the full answer

Financial Modeling

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