Amazon.com (AMZN) currently trades for $3440 a share. A 2-month at- the-money call option on AMZN trades for $20. All options are European and AMZN pays no dividends. The interest rate is 1% with continuous compounding.

(a)  What is the adjusted intrinsic value of the 2-month call option?

(b)  What is the no-arbitrage price of a 2-month at-the-money put option on AMZN?

(c)  If the put option in (b) is trading for $16, is there an arbitrage op- portunity and if so, what securities would you buy and/or sell to take advantage of it?

Answer rating: 100% (QA)

To solve this problem well use the BlackScholes option pricing model The formulas for calculating th... View the full answer