The price of a stock, which pays no dividends, is $76 and the strike price ofa10-month European put option on the stock is $90. The risk-free rate is 3.5%(continuously compounded). (1) Compute the lower bound for the option.(2) If the European put option price is $10, is there an arbitrage opportunity? How to takeadvantage of this arbitrage opportunity? What is the profit? (Please detail the actionsto be taken today and at the maturity of the option and include all the relatedcomputations)

The price of a stock, which pays no dividends, is $30 and the strike price of a two-year European call option on the stock is $25. The risk-free rate is 8% (continuously compounded). Which of the following is a precise lower bound for the option such that there are arbitrage opportunities if the price is below the lower bound and no arbitrage opportunities if it is above the lower bound? Round your answer to 2 decimal places. a. $8.42 b. $8.76 c. $8.57 d. $8.70

5. Suppose the one-year futures price on a stock-index portfolio is 1218, the stock index currently is 1200, the one-year risk-free interest rate is 3%, and the ybar-end dividend that will be paid on a $1,200 investment in the index portfolio is $15. a. By how much is the contract mispriced? b. Formulate a zero-net-investment arbitrage portfolio and show that you can lock in riskless profits equal to the futures mispricing. Assume a zero bid-ask spread in security and futures transactions. Now assume that if you short sell the stocks in the index portfolio, the proceeds are kept with the broker, and you do not receive any interest income of the funds. Is there still an arbitrage opportunity (assuming that you don't already own the shares in the index)? d. Given the short sale rules, what is the no-arbitrage band for the stock-futures price relationship? Specifically, how high and how low can the futures price be without giving rise to arbitrage opportunities. C.

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