A 4-month European call option on a stock (with dividend) is currently selling for RM5. The price of the stock is RM64 and the strike price is RM60. The risk-free interest rate is 12% p.a. A dividend of RM0.80 is expected one month from now. Is there any arbitrage opportunities? Show your working. How much is the profit/loss if at maturity the price of the stock is higher than the strike price? How much is the profit/loss if at maturity the price of the stock is lower than the strike price?
A 4-month European call option on a stock (with dividend) is currently selling for RM5. The price of the stock is RM64 and the strike price is RM60. The risk-free interest rate is 12% p.a. A dividend of RM0.80 is expected one month from now. Is there any arbitrage opportunities? Show your working. How much is the profit/loss if at maturity the price of the stock is higher than the strike price? How much is the profit/loss if at maturity the price of the stock is lower than the strike price?
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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A 4-month European call option on a stock (with dividend) is currently selling for RM5. The price of the stock is RM64 and the strike price is RM60. The risk-free interest rate is 12% p.a. A dividend of RM0.80 is expected one month from now.
- Is there any arbitrage opportunities? Show your working.
- How much is the
profit/loss if at maturity the price of the stock is higher than the strike price? - How much is the profit/loss if at maturity the price of the stock is lower than the strike price?
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