Consider American call and put on stock Y. Both the call and the put are 6-month to
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Question:
Consider American call and put on stock Y. Both the call and the put are 6-month to expiration with strike price of $205. Current stock price is $200; and the stock does not pay any dividend in 6-month. Interest rate is 10%. The call option premium is $8.57.
(A) What is the range of the put option premium, for which the trader has no arbitrage opportunities?
(B) Suppose market price of the put is out of your range and is over-priced. Please use a numeric example to briefly describe your arbitrage strategy and cash flows today and in 6 months.
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ISBN: 978-0073398242
11th edition
Authors: Ferdinand Beer, E. Russell Johnston Jr., David Mazurek, Phillip Cornwell, Brian Self
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