Question

Problem 3.1. A European call option on a stock with a strike price of $50 and expiring in six months is trading at $14. A European put option on the stock with the same strike price and expiration as the call option is trading at $2. The current stock price is $60 and a $1 dividend is expected in three months. Zero coupon risk-free bonds with face value of $100 and maturing after 3 months and 6 months are trading at $99 and $98, respectively. Identify the arbitrage opportunity open to a trader.

Answer 1

The. Trader should buy the out option

Step-by-step explanation:

See attached file