A
D
Today's stock price, So
$85.00
Option exercise price, X
$80.00
Option exercise time, T (in years)
1
Interest rate, r
5.00%
Call price, Call (Co)
$10.00
1)
Answer Formulatext
Lower bound of European call (Fact 1)
2)
Put price, Po, by put-call parity
3) & 4)
Put price today (t=0)
Arbitrage strategy (TODAY, time 0)
1.
2.
3.
4.
Today's profit (Cash flow) (=1+2+3+4)
5)
Stock price at T(expiration date), ST
Action at time T(expiration date)
Exercise or not exercise the put?
1.
Exercise or not exercise the call?
2.
3.
4.
Profit (cash flow) at T (=1+2+3+4)
Answer Formulatext
0.50
cash flow Formulatext
70
cash flow
Formulatext