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The present price of a stock is 50. The market value of a European call with strike 47.5 and maturity 180 days is 4.375. The cost of a risk-free dollar in 180 days hence is 0.98. For a European put with a strike price of 47.5 you are quoted a price of 1.025. Show this is inconsistent with put-call parity. Describe how you can take advantage of this situation, by finding a combination of purchases and sales which provides an instant prot with no liability 180 days from now.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92320714

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