Mazzi Corp. shares are currently trading at RM14.00 each. A three-month put option on this share is priced RM0.50 at a strike price of RM15.00. The risk free interest is 10% per annum for all maturities. Observing this data, identify and calculate what are the arbitrage opportunities available.
Mazzi Corp. shares are currently trading at RM14.00 each. A three-month put option on this share is priced RM0.50 at a strike price of RM15.00. The risk free interest is 10% per annum for all maturities. Observing this data, identify and calculate what are the arbitrage opportunities available.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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- Mazzi Corp. shares are currently trading at RM14.00 each. A three-month put option on this share is priced RM0.50 at a strike price of RM15.00. The risk free interest is 10% per annum for all maturities. Observing this data, identify and calculate what are the arbitrage opportunities available.
- J-Rata Corp can supply 50,000 metric tons (MT) of crude palm oil (CPO) to L-Brothers on 15th March 2021. The current CPO price is RM3400 per MT. It is expected that the CPO could be trading at RM2700 per MT on 15th March 2021. The FCPO (CPO Futures) is currently trading at RM3450 per MT. Each FCPO contract is 25 MTs. If the FCPO is trading at RM2100 per MT on 15th March 2021, calculate the net sales revenue of J-Rata Corp in this supply transaction if it decides to hedge by using FCPO contracts.
- J-Rata Corp shares are currently trading at $30 each. It is expected to increase by 10% or decrease by 6% during the next two-three months. If its strike price at maturity in six months is set as $32 and the risk free rate is 8% per annum for all maturities:
(a) Calculate its call options price and its put option price currently
(b)Test and prove that the put-call parity is holding based on your option pricing.
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