1. Assume MMM stock is trading at $180 and has a dividend rate of 1% per year. The interest rate is 2% per year and an at-the-money call option that expires in 1 year costs $1.50. Is there an arbitrage opportunity? If so, create a portfolio that always pays off at least $1,000,000.
2. Assume the dividend rate is 3% and there’s an at-the-money put expiring in 2 years that costs $15. Is there an arbitrage opportunity? If so, create a portfolio that always pays off at least $1,000,000.
3. Under the same setting as problem (5) there is also an at-the-money call expiring in 2 years that costs $2. Is there an arbitrage? If so, create a portfolio that always pays off at least $1,000,000.