You observed following prices for options on ZM stock: $2.50 for a call and $3.00 for a put. Both options have an exercise price of $50 and will expire in 6 months. The interest rate on t-bills is 2.9% per annum. The stock of ZM is currently trading at $50 with a standard deviation of 25% per year. ZM does not pay any dividends. Are there any arbitrage opportunities? If yes, explain how to arbitrage including the transactions involved and compute the arbitrage profit. If not, explain why not.

Answer rating: 100% (QA)

To determine if there are any arbitrage opportunities we need to calculate the theoretical prices of ... View the full answer