hard · Principles of Finance
A stock is trading at 100. A six-month European call with a strike of 100 trades at 6.50, and a six-month European put with a strike of 100 trades at 4.50. The continuously compounded risk-free rate is 4%.
According to put-call parity, what should the arbitrageur do?
- There is no arbitrage opportunity
- Sell call, sell put, buy stock, lend cash
- Sell call, buy put, buy stock, borrow cash
- Buy call, sell put, sell stock, lend cash
Sign up free to see the explanation and track your rank →
More Principles of Finance practice
- Which loan has the higher effective annual rate (EAR)?
- Using the Capital Asset Pricing Model (CAPM), calculate the cost of equity for a firm with
- What is its current market price?
- What is the Multiple of Invested Capital (MOIC) for the equity investors?
- What is its Modified Duration?
- What is the Cash Flow from Operations (CFO)?
- What is the net profit per share for the investor?
- What is its Degree of Financial Leverage (DFL)?