Rankin Corp. common stock is priced at $74.20 per share. The company just paid its $1.10 quarterly dividend. Interest rates are
6.0%. A $70.00 strike European call, maturing in 6 months, sells for $6.50. How much arbitrage profit/loss is made by shorting the European call, which is priced at $2.50?
We will be obtaining the no-arbitrage premium of the corresponding put as dictated by put-call parity, as follows: V P (0, K = 70, T = 0.5) = V C (K = 70, T = 0.5) + e rt K S(0) + P V 0,T (Dividends)
= 6.50 + exponential (0.03 70 74.20) + e (0.06 0.25 1.10) + e (0.06 0.5 1.10)
= 67.70 + 0.97 70 + 0.98 1.10 + 0.97 1.10
= 67.70 + 68.97 + 1.08 = 2.38.
Since we have decided to short the call at a premium higher by $0.12, the answer is $0.12 gain.
Correct word for the given statement is Revenue recognition
Revenue recognition is a proper accounting rule (GAAP) that distinguishes the particular conditions wherein income is perceived and decides how to represent it. Normally, income is perceived when a basic occasion has happened, and the dollar sum is effectively quantifiable to the organization.
The safety stock levels are not decreased before and after the centralization, only when the lead time demands between the two warehouses were perfectly positively correlated. i.e the demand in both the warehouses was increasing and decreasing at the same time.
<em>As the correlation indicated in the question statement is regarding the negatively correlated thus the statement is false.</em>