Suppose the current price of a stock with a continuous dividend yield of 2% per annum is
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Suppose the current price of a stock with a continuous dividend yield of 2% per annum is $10 per share. Suppose also the continuously compounded risk-free interest rate is 5% per annum. Determine whether there is an arbitrage opportunity for the following situation. Explain why.
The price of a European call option with a strike price of $10 and maturity of 1 year is $0.42, and the price of a European put option with a strike price of $11 and maturity of one year is $0.10.
Related Book For
Fundamentals of Investing
ISBN: 978-0133075359
12th edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk
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