Problemthe current stock price of abc corporation is 5350, Ask an Expert

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Problem:

The current stock price of ABC Corporation is $53.50. ABC Corporation has the following put and call option prices that expire 6 months from today. The risk-free rate of return is 5% and the expected return on the market is 11%:

Exercise Price	Put Price	Call Price
50	$1.50	$5.75
55	$3.25	---

Required:

Question 1: What should the price be of a call option that expires 6 month from today with an exercise price of $55?

Question 2: What is the value of a synthetic stock created with put and call options that expire in 6 months with an expiration price of $50?

Question 3: Is there any arbitrage opportunity? If there is, how to create the position?

Note: Provide support for your underlying principle.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91167615

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