A stock price is currently priced at 25 in 1 year its price, Ask an Expert

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A stock price is currently priced at $25. In 1 year its price will either be $26 or $30. The risk-free rate is 5% per annum with continuous compounding. (a) Suppose the stock pays a continuous dividend yield of 3% per annum. Construct an arbitrage opportunity. (b) Suppose the stock pays a continuous dividend yield of 1% per annum. In this case there is no arbitrage opportunity. So go ahead and price a 1-year at-the-money European call option on the stock.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92062467

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