Question: QUESTION ONE (13 marks) a) What is the difference between a call option and a put option? (3 marks) Consider a one period call option

QUESTION ONE (13 marks) a) What is the difference between a

QUESTION ONE (13 marks) a) What is the difference between a call option and a put option? (3 marks) Consider a one period call option with an exercise price of Sh. 25. The risk free rates 7% and the current stock value is Sh. 25. The volatility of stock prices is 33.65%. Suppose the option is also trading at Sh. 3.5 and 100 options are traded. Required Determine the appropriate arbitrage strategy (10 marks) b)

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