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A three-month call option on a stock is currently selling at $5. The current stock price...

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Finance

A three-month call option on a stock is currently selling at $5.The current stock price is $65, the strike price for the option is$60. The risk - free rate is 10% p.a. for all maturities.

a.) Is there any opportunity for an arbitrageur? Explain

b.) Show the strategy how an arbitrageur can obtain thearbitrage profit. What will the profit be? Show workings

Answer & Explanation Solved by verified expert
4.4 Ratings (605 Votes)
Arbitrage opportunity is an opportunity to earnprofit without making any investment and taking any risk Thisopportunity normally arise when asset is not fairly priced or notin equilibriumaTo    See Answer
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