Suppose that a non-dividend paying stock price is traded at a price $0-$100 today. The price...

 

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Suppose that a non-dividend paying stock price is traded at a price $0-$100 today. The price of a one-year European put option, with exercise price X-$90 is P0-$4. Suppose that the risk-free rate is equal to zero. (a) What should be the price CO of a one-year European call option on the stock with the same exercise price as the put, X-$907 (b) Suppose that the one-year European call options on the stock trade at CO-$15. How would you setup an arbitrage? Describe your trades at time zero, as well as the payoffs on each of your portfolio position after a year. Suppose that a non-dividend paying stock price is traded at a price $0-$100 today. The price of a one-year European put option, with exercise price X-$90 is P0-$4. Suppose that the risk-free rate is equal to zero. (a) What should be the price CO of a one-year European call option on the stock with the same exercise price as the put, X-$907 (b) Suppose that the one-year European call options on the stock trade at CO-$15. How would you setup an arbitrage? Describe your trades at time zero, as well as the payoffs on each of your portfolio position after a year. Suppose that a non-dividend paying stock price is traded at a price $0-$100 today. The price of a one-year European put option, with exercise price X-$90 is P0-$4. Suppose that the risk-free rate is equal to zero. (a) What should be the price CO of a one-year European call option on the stock with the same exercise price as the put, X-$907 (b) Suppose that the one-year European call options on the stock trade at CO-$15. How would you setup an arbitrage? Describe your trades at time zero, as well as the payoffs on each of your portfolio position after a year. Suppose that a non-dividend paying stock price is traded at a price $0-$100 today. The price of a one-year European put option, with exercise price X-$90 is P0-$4. Suppose that the risk-free rate is equal to zero. (a) What should be the price CO of a one-year European call option on the stock with the same exercise price as the put, X-$907 (b) Suppose that the one-year European call options on the stock trade at CO-$15. How would you setup an arbitrage? Describe your trades at time zero, as well as the payoffs on each of your portfolio position after a year.

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