A European call and European put option on a stock both cost $5 with a common strike price $30 and a common time to maturity of one year. The current stock price is $30. The risk-free rate is 4% per annum (continuously compounded). What arbitrage opportunities does this create?

Answer rating: 100% (QA)

To determine if there are any arbitrage opportunities we need to compare the cost of the options with their potential payoffs at expiration Lets analy... View the full answer