The price of a stock, which pays no dividends, is $50 and the strike price of a

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The price of a stock, which pays no dividends, is $50 and the strike price of a one-year European call option on the stock is $45. The call option premium is $5. The risk-free rate is 4% (continuously compounded). Is there an arbitrage opportunity?

If yes, please describe your strategy, your cash flow, and your profit in one year. If no, please explain.

Related Book For answer-question

Investments

ISBN: 978-0071338875

8th Canadian Edition

Authors: Zvi Bodie, Alex Kane, Alan Marcus, Stylianos Perrakis, Peter

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Posted Date: Jun 26, 2023 07:03 AM

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The price of a stock, which pays no dividends, is $50 and the strike price of a

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Investments

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