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A stock is currently trading at a price of $30 with a continuous dividend rate of 1% when the risk-free interest rate is 5%. In 3 months, the stock will be trading at either $38 or $24. a. What is the current price of a European put option with a strike price of $29 and three month until expiration? b. If the put option in Part A is trading at a market price of $3.25, what three transactions can an arbitrageur enter into today to guarantee a risk-free profit? And how much money will be earned (in present value terms)?

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Financial Management, Finance

Category:- Financial Management
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