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please answer question D and E

answer c and d only

Problem 1 Given the following data as of the close of trading on 10/26/18: Quest Diagnostics (DGX): 91.47 T-bill: Asked 2.28, Days to Maturity 84 Options on DGX: expire January 18, 2019 70 0.35 0.55 80 1.95 23.7 17.5 12.9 8.7 5.2 2.55 1.1 0.45 90 3.4 95 100 6.1 9.7 14.2 105 d. Continue to assume that the call option struck at $80 trades at a premium of $11.00. This time, take the following positions: (1) buy the call; (2) short the stock; (3) invest in the T. bill at the risk-free rate. Show the value of these positions at expiration. Fill out the following table and show you make arbitrage profit. Expiration, DGX 80 Position Buy call Short DGX Invest in T-bill TOTAL Cash Flow Today -11 +91.47 -80.47 e. Calculate present value of the arbitrage profit made in part d and compare it to the arbitrage profit you made in part b. Which strategy do you choose: immediate exercise or holding positions until expiration? Problem 1 Given the following data as of the close of trading on 10/26/18: Quest Diagnostics (DGX): 91.47 T-bill: Asked 2.28. Days to Maturity 84 Options on DGX: expire January 18, 2019 70 0.35 0.55 23.7 17.5 12.9 8.7 5.2 90 2.55 9.7 1.1 0.45 100 105 142 a. Show that every option in the table is priced above the lower bound (these are American options). Fill out the following table: Lower bound, put Strike 70 Lower bound, call 21.33 80 90 95 100 8 .53 2.53 105 call option put option 0 0 Max Iso-x/litt, o] Max [x-so.o] b. Imagine now that the call option struck at $80 trades at a premium of $11.00 (instead of $12.90). Show that you can earn an arbitrage profit from buying the option and exercising it immediately. the call option stuck at doller sor premiurot rotead of 411.40. e con on arbitrage post it of 1.9 by entering into the call option as buying the option and exercising it immediately of hanging the option and seeruiting it immediately c. From the T-bill data, calculate the discount factor. 91.47.34 / 365 = 21.05% 21.05% is the otiscount factor which should divided by 2.28 which results in d. Continue to assume that the call option struck at 580 trades at a premium of $11.00. This time, take the following positions: (1) buy the call: (2) short the stock; (3) invest in the T- bill at the risk-free rate. Show the value of these positions at expiration. Fill out the following table and show you make arbitrage profit. 9.23 Expiration. DGX 80 Position Buy call Short DGX Invest in T-bill TOTAL Cash Flow Today -11 +91.47 -80.47 e. Calculate present value of the arbitrage profit made in part d and compare it to the arbitrage profit you made in part b. Which strategy do you choose: immediate exercise or holding positions until expiration? Problem 1 Given the following data as of the close of trading on 10/26/18: Quest Diagnostics (DGX): 91.47 T-bill: Asked 2.28, Days to Maturity 84 Options on DGX: expire January 18, 2019 70 0.35 0.55 80 1.95 23.7 17.5 12.9 8.7 5.2 2.55 1.1 0.45 90 3.4 95 100 6.1 9.7 14.2 105 d. Continue to assume that the call option struck at $80 trades at a premium of $11.00. This time, take the following positions: (1) buy the call; (2) short the stock; (3) invest in the T. bill at the risk-free rate. Show the value of these positions at expiration. Fill out the following table and show you make arbitrage profit. Expiration, DGX 80 Position Buy call Short DGX Invest in T-bill TOTAL Cash Flow Today -11 +91.47 -80.47 e. Calculate present value of the arbitrage profit made in part d and compare it to the arbitrage profit you made in part b. Which strategy do you choose: immediate exercise or holding positions until expiration? Problem 1 Given the following data as of the close of trading on 10/26/18: Quest Diagnostics (DGX): 91.47 T-bill: Asked 2.28. Days to Maturity 84 Options on DGX: expire January 18, 2019 70 0.35 0.55 23.7 17.5 12.9 8.7 5.2 90 2.55 9.7 1.1 0.45 100 105 142 a. Show that every option in the table is priced above the lower bound (these are American options). Fill out the following table: Lower bound, put Strike 70 Lower bound, call 21.33 80 90 95 100 8 .53 2.53 105 call option put option 0 0 Max Iso-x/litt, o] Max [x-so.o] b. Imagine now that the call option struck at $80 trades at a premium of $11.00 (instead of $12.90). Show that you can earn an arbitrage profit from buying the option and exercising it immediately. the call option stuck at doller sor premiurot rotead of 411.40. e con on arbitrage post it of 1.9 by entering into the call option as buying the option and exercising it immediately of hanging the option and seeruiting it immediately c. From the T-bill data, calculate the discount factor. 91.47.34 / 365 = 21.05% 21.05% is the otiscount factor which should divided by 2.28 which results in d. Continue to assume that the call option struck at 580 trades at a premium of $11.00. This time, take the following positions: (1) buy the call: (2) short the stock; (3) invest in the T- bill at the risk-free rate. Show the value of these positions at expiration. Fill out the following table and show you make arbitrage profit. 9.23 Expiration. DGX 80 Position Buy call Short DGX Invest in T-bill TOTAL Cash Flow Today -11 +91.47 -80.47 e. Calculate present value of the arbitrage profit made in part d and compare it to the arbitrage profit you made in part b. Which strategy do you choose: immediate exercise or holding positions until expiration

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