Question: Consider the following information: Stock price: $160 Current date: December 20 r f (for January 21): 0.0535 r f (for March 16): 0.0571 T (Dec.,

  1. Consider the following information:
    • Stock price: $160
    • Current date: December 20
    • rf (for January 21): 0.0535
    • rf (for March 16): 0.0571
    • T (Dec., 20 Jan., 21) = 0.0877
    • T (Dec., 20 March, 16) = 0.2356
    • Volatility (): 49% = 0.49
    • January 145 call option market price: $16.13
    • March 165 put option market price: $ 14.81

By using BSM model formula:

  1. Calculate the theoretical fair value of January 145 call option. Are there any arbitrage opportunities? If yes, explain how? (20 pts)
  2. Calculate the theoretical fair value of March 165 put option. Are there any arbitrage opportunities? If yes, explain how? (20 pts)

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