Assume that the stock price is $56, call option price is $9, the put option price is...
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Assume that the stock price is $56, call option price is $9, the put option price is $5, risk-free rate is 5%, the maturity of both options is 1 year , and the strike price of both options is 58.
An investor can __the put option, ___the call option, ___the stock, and ______ to explore the arbitrage opportunity.
A. sell, buy, short-sell, borrow
B. buy, sell, buy, borrow
C. sell, buy, short-sell, lend
D. buy, sell, buy, lend
Homework Answers
To answer this question we should use the put call parity relationship, which says that to explore an arbitrage opportunity, you should sell the put, short the stock, buy a call and buy or lend at tthe risk free rate.
Option C is the correct answer.
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