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Homework answers / question archive / The price of a European put that expires in six months and has a strike price of $100 is $3

The price of a European put that expires in six months and has a strike price of $100 is $3

Finance

The price of a European put that expires in six months and has a strike price of $100 is $3.59. The underlying stock price is $102, and a dividend of $1.50 is expected in four months. The term structure is flat, with all risk-free interest rates being 8% (cont. comp.).

  1. What is the price of a European call option on the same stock that expires in six months and has a strike price of $100?
  2. Explain in detail the arbitrage opportunities if the European call price is $6.1. How much will be the arbitrage profit?
  3. Explain in detail the arbitrage opportunities if the European call price is $8.8. How much will be the arbitrage profit?

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