4. (6 points) (European options) The at-the-money call option on INTC is trading at $6....
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4. (6 points) (European options) The at-the-money call option on INTC is trading at $6. The at the money put on INTC is trading at $3.5. Both options expire in 1 year. INTC stock is trading at $50. The one-year interest rate is 5%. Assume INTC pays no dividends. a) (3 points) Is there an arbitrage opportunity? Is the put trading in the market cheap or expensive compared to the synthetic put? b) (3 points) If there is an arbitrage opportunity, how would you trade to take advantage of this? Show what you will buy, sell. Show how much money you can make today, and that you have no future liabilities. 4. (6 points) (European options) The at-the-money call option on INTC is trading at $6. The at the money put on INTC is trading at $3.5. Both options expire in 1 year. INTC stock is trading at $50. The one-year interest rate is 5%. Assume INTC pays no dividends. a) (3 points) Is there an arbitrage opportunity? Is the put trading in the market cheap or expensive compared to the synthetic put? b) (3 points) If there is an arbitrage opportunity, how would you trade to take advantage of this? Show what you will buy, sell. Show how much money you can make today, and that you have no future liabilities
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