A 4-month European call option on a stock (with dividend) is currently selling for RM5. The price
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Question:
A 4-month European call option on a stock (with dividend) is currently selling for RM5. The price of the stock is RM64 and the strike price is RM60. The risk-free interest rate is 12% p.a. A dividend of RM0.80 is expected one month from now.
1. Is there any arbitrage opportunities? Show your work.
2. How much is the profit/loss if at maturity the price of the stock is higher than the strike price?
3. How much is the profit/loss if at maturity the price of the stock is lower than the strike price?
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