1.;A common stock will have a price of either $85 or $35 in 2 months. A two month put;option on the stock has a strike price of $40.;Create a risk-less portfolio. Buy one put option. How many shares should you buy?;2.;A European call option and put option on a stock both have a strike price of $50 and an;expiration date in two months. Both sell for $5. The risk-free interest rate is 10% per;annum, the current stock price is $55, and a $2 dividend is expected in one month.;Identify the arbitrage opportunity open to a trader.;Clearly state what a trader would do to make a profit. What is the present value of;the traders profit?;Profit may be expressed relative to the number of put options traded. Make sure that you;show or explain all calculations.
Paper#23425 | Written in 18-Jul-2015Price : $27