You discover the following information: ABC share price is $31. A three-month call option on ABC...
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You discover the following information: ABC share price is $31. A three-month call option on ABC share is $3, and the price of a three-month put on ABC share is $1, both of these two options have the same exercise price of $30. The risk-free rate is 10% per annum. a) Is put-call parity held? Please demonstrate. [5 marks] b) Are you able to make any arbitrage profits from it? Construct an arbitrage strategy to exploit disparities. Please show your cash flows in different time of period. [15 marks] You discover the following information: ABC share price is $31. A three-month call option on ABC share is $3, and the price of a three-month put on ABC share is $1, both of these two options have the same exercise price of $30. The risk-free rate is 10% per annum. a) Is put-call parity held? Please demonstrate. [5 marks] b) Are you able to make any arbitrage profits from it? Construct an arbitrage strategy to exploit disparities. Please show your cash flows in different time of period. [15 marks]
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a As per Put Call Parity the prices of options with same strike price expiry date are as follows Pri... View the full answer
Related Book For
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Posted Date:
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