1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
3241004551 [841]
3 years ago
7

You happen to be checking the newspaper and notice an arbitrage opportunity. The current stock price of Intrawest is $20 per sha

re and the one-year risk-free interest rate is 8%. A one-year put on Intrawest with a strike price of $18 sells for $3.33, while the identical call sells for $7. Explain what you must do to exploit this arbitrage opportunity. Berk, Jonathan; DeMarzo, Peter; Harford, Jarrad. Fundamentals of Corporate Finance (2-downloads) (Berk, DeMarzo
Business
1 answer:
Vinil7 [7]3 years ago
6 0

Answer:

Using the Put-Call parity principle where the following relationship holds:

Covered Call = Protective Put

Using the above, find the call price:

Call + Strike price / (1 + risk free rate) = Stock price + Put

Call + 18 / (1.08) = 20 + 3.33

Call + 16.67 = 20 + 3.33

Call = 23.33 - 16.67

Call = $6.66

<em></em>

<em>The call option is overvalued at $7 so sell the Call option and buy the Put option and the Stock and borrow $16.67 which is the present value of the Put. </em>

<em>The net gain will be:</em>

<em>= 7 - 6.66</em>

<em>= $0.34</em>

You might be interested in
What process guides your entry and closing points? 1. Reducing the randomness of your approach 2. Pragmatic 3. Facilitate adapta
Airida [17]

Answer:

1. Reducing the randomness of your approach

Explanation:

Reducing the randomness of your approach guides your entry and closing points

8 0
3 years ago
How do Government price ceilings and price floors affect the economy? Select all that apply.
serg [7]
The following options are correct: A, B AND C.
Price ceiling and price floor are two price control methods which the government used to control price. Price ceiling is used to prevent prices from been too low while price floor is lowest price a commodity can be sold for .
7 0
3 years ago
The learning curve is:_______
never [62]

Answer:

Option C, Shows the decrease in unit cost as more of the same product is produced over time, is the right answer.

Explanation:

Option C is the correct answer because the learning curve shows the relationship between the cost of the production and output over the time period. Moreover, this curve shows the cost savings when more output is produced over time. The same can be seen in option C that the cost decreases when output rises which means there is a cost-saving.

5 0
3 years ago
Which of these can a student use a career assessment for?
hram777 [196]

Answer:

D. To help pick a college or university

Explanation:

Career assessments help a student know which field of work is best. Knowing the best field of work can help work choosing a school that specializes in that area.

3 0
3 years ago
You want to be a millionaire when you retire in 35 years. a. How much do you have to save each month if you can earn an annual r
expeople1 [14]

Answer:

Monthly deposit= $164.24

Explanation:

Giving the following information:

Future value= $1,000,000

Interest rate= 0.118/12= 0.00983

Number of periods= 35*12= 420 months

<u>To calculate the monthly deposit, we need to use the following formula:</u>

FV= {A*[(1+i)^n-1]}/i

A= monthly deposit

Isolating A:

A= (FV*i)/{[(1+i)^n]-1}

A= (1,000,000*0.00983) / [(1.00983^420) - 1]

A= $164.24

7 0
3 years ago
Other questions:
  • Coca-Cola’s "Simply Orange" product division ships oranges from three different groves to five processing plants. Typically, how
    6·1 answer
  • which of the following is the guiding economic philosophy of the free enterprise system? socialism communism marxism capitalism
    14·2 answers
  • On February 28, 1991, Master Inc. had total assets with a fair market value of $1,200,000 and total liabilities of $900,000. On
    10·1 answer
  • Michelle always drives down Hampton Avenue to go to work. One morning, Michelle discovers that Hampton Avenue is closed at Wood
    14·1 answer
  • Suppose that TapDance, Inc.’s, capital structure features 75 percent equity, 25 percent debt, and that its before-tax cost of de
    6·1 answer
  • lila gallo borrowed $10000 from her bank to build up the inventory of her stationery store. the loan was payable in six months a
    6·2 answers
  • An economy is operating with output $300 billion below its natural rate, and fiscal policymakers want to close this recessionary
    12·1 answer
  • Activity-based costing systems: Eliminate multiple-stage cost allocation. Accumulate overhead costs by departments. Have separat
    11·1 answer
  • *giving brainliest to the first correct answer*
    6·2 answers
  • A written agreement with a promise to pay a supplier a specific sum of money at a definite time is a(n) ______.
    8·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!