The price of a european put that expires in eight months, Ask an Expert

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The price of a European put that expires in eight months and has a strike price of $50 is $3. The underlying stock price is $53, and a dividend of $1 is expected in three months and again in six months. Interest rates (all maturities) are 5% on a continuously compounded basis. What is the price of a European call option on the same stock that expires in eight months and has a strike price of $50?

Explain the arbitrage opportunity in the above problem if the European call price is $2.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91564228

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