On February 1st September call option with exercise price of $55 written on Aztec stock is sold
QUESTION
On February 1st, September call option with exercise price of $55 writtenon Aztec stock is sold for $4.375 per share and September put option withexercise price of $55 written the same stock is sold for $6 per share. At thetime, T-bills coming due in September were price to yield 12%. Aztec stockwas sold for $53 per share on February 1st.1. If the call option, Aztec stock, and T-bills are correctly priced, whatwas the appropriate value of put option? (1 points)2. How to take advantage of this situation? Please show arbitrage profitusing arbitrage table. (2 points)
Aztech stock:- value of call option = call value of stock in the month of february for the month of sept+call option premium value of call option=$55+$4.375=$59.375 Treasury bill value of put option=Put option +put option premium value of put option=$55-$6=$49 future value of spot price=$53+($10*8/12*12%) future value of spot price =$53.80 Using arbitrage pricing
model:- $59.375+$53.80=$49+value of put value of put in september=$64.175 value of put option=(64.175-55)$ value of put option=$9.175 Hence for the purpose of arbitrage ,buy call option and sell put option in february for the month of september
ANSWER:
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