1. Using the call-put parity, compute the value of a 9-month European put on a stock with current price of US$ 25 and strike price of US$ 27, where the value of an European call on the same stock and with the same strike price is US$ 2.5 and the rf equals 10% annual.

Based on your previous answer, if the market price of the put is US$ 2.35, identify the existence of an arbitrage opportunity and explain how you can profit from it.

Answer rating: 100% (QA)

To compute the value of the European put using the callput parity we use the formula Put Call Presen... View the full answer