The price of a nondividend paying stock is 100 and the, Ask an Expert

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The price of a nondividend paying stock is $100 and the continuously compounded risk free rate is 5% (i.e. e^(.05*t)) A 1 year European Call option with a strike of $100 * e^.05*1 = $105.127 has a premium of $11.924. A 1.5 year European call option with a strike price of $100 * e^(.05*1.5) = $107.788 has a premium of $11.50.

Demonstrate an arbitrage opportunity

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Basic Finance, Finance

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