Table 20.4 lists some prices of options on common stocks (prices are quoted to the nearest dollar). The interest rate is 10% a year. Can you spot any mispricing? What would you do to take advantage of it?
TABLE 20.4
Prices of options on common stocks (in dollars). See Problem 27.
Stock | Time to Exercise (months) | Exercise Price | Stock Price | Put Price | Call Price |
Drongo Corp. | 6 | $ 50 | $80 | $20 | $52 |
Ragwort, Inc. | 6 | 100 | 80 | 10 | 15 |
Wombat Corp. | 3 | 40 | 50 | 7 | 18 |
| 6 | 40 | 50 | 5 | 17 |
| 6 | 50 | 50 | 8 | 10 |
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