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A European call option and put option on a stock both have a strike price of $20 and an expiration date in three months. Both sell for $3. The risk-free interest rate is 10% per annum, the current stock price is $22, and a $1 dividend is expected in one month. Identify the arbitrage opportunity open to a trader. EC: for each of the elements in your strategy, identify what happens/what value it has at the end of the 3 months, if the price of the stock then is $21.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M93042589

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