Tucker Inc. common stock currently trades for $90/share. 6-month European put options on the stock have...

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Finance

Tucker Inc. common stock currently trades for $90/share. 6-monthEuropean put options on the stock have an exercise price andpremium of $93 and $4, respectively. The annual risk free rate is2%. What should be the value of a 6-month European call option onthe stock with an exercise price of $93 according to put-callparity? Round intermediate steps to four decimals and your finalanswer to two decimals.
7.90
.065
1.93
2.84
2.15
Suppose 6-month European call options with an exercise price of$93 actually have a market price of $2.15. Which of the followingstrategies could you employ to earn an arbitrage return?
Short the market call, buy the stock, buy the put and short thepresent value of the exercise price at the risk-free rate.
Buy the market call, short the stock, short the put and investthe present value of the exercise price at the risk-free rate.
Short the market call, buy the stock, buy the put and investthe present value of the exercise price at the risk-free rate.
Arbitrage is not possible.
None of the above.
Find the arbitrage profit you could earn per call option.
575
209
69
22
0

Answer & Explanation Solved by verified expert

4.1 Ratings (672 Votes)

Callput parity equation can be used in following manner C K e rt P S0 1 Where C price of the call option P price of the put option 4 S0 spot price 90 Strike price K 93 The riskfree rate r 2 Time period t 6 months or 05 year Now putting all See Answer

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