Question

The current price of YBM stock S is $101. European options with a strike price K = $100 and maturing in T = 6 months trade on YBM. The continuously compounded, risk-free interest rate r is 5 percent per year. If the call price c is $7.50 and the put price p is $4.60, then the arbitrage profits that you can make today by trading one contract of each option (one contract is based on 100 shares) are:

Please show all steps.

Answer 1

А В E F G Stock price Exercise price D 101 100 6 months 5% 7.5 E a 4.6 Put call parity Put premium + stock price = call premium + PV of exercise price LHS RHS 105.60 105.03 Buy call Invest present value of Exercise price Sell put Short stock Arbitage profit For 100 contract -7.5 -97.53 4.6 101 0.57 56.90

Clipboala Font Allghment Number Styles Cells Editing A21 A А DE F 101 Stock price Exercise price 100 Hnm + No 6 months 0.05 7.5 4.6 Put call parity Put premium + stock price = call premium + PV of exercise price LHS =D6+D1 =D5+D2/EXP(D4*6/12) RHS 11 12 13 Buy call Invest present value of Exercise price Sell put Short stock Arbitage profit For 100 contract -7.5 =-100/EXP(5%*0.5) 4.6 101 =SUM(D12:D15) =D16*100 17 18 19 20 22 22