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
If the money wage rate increased from $40.00 to 45.24 and hour and consumer prices rose by 16%, we would expect _______ people t
vitfil [10]

Answer:

If the money wage rate increased from $40.00 to 45.24 and hour and consumer prices rose by 16%, we would expect _______ people to try to find a job and employed people to want to work _______ hours.

a. more; longer.

The____ would _____.

b. quantity of labor supplied; increase.

Explanation:

Generally, when wage rates increase, this will led to an increase in the inflation rate. The problem is what happens if wages increase less than the inflation rate. This means that real wages will actually decrease once we adjust them to inflation. This will cause more people trying to get a job or working longer hours just to be able to pay for the same amount of goods as before.

In this example, the wage rate increased by 13.1%, but the inflation rate increased by 16%, so real wages decreased.

8 0
2 years ago
Complete the sentence. Mutual funds that impose a sales charge are called _____.
Evgesh-ka [11]

Answer:

Fee based fund  is the correct answer to the given question

Explanation:

In the fee based funds exercise the money is charged directly to customers.The Fee-Based Funds  is imposing the charge of sales to the customer .The Fee-based funds consultants could charge an extra  payment of fixed price according to the company policy .

  • When the company sells the mutual fund in a fee-based consideration individuals will buy the bond fund Series of the F units.
  • All the other options are not related to imposing the sales charge that's why they are incorrect option .

8 0
3 years ago
Which statement is true regarding Check No. - 409?
kakasveta [241]
What are the statements?
3 0
3 years ago
Bob is a manager at a local toyota dealership who has lost five of his employees during the last year. now he has to make a deci
Roman55 [17]

The problem that Bob will most likely face in terms of evaluation and feedback step in the decision making process is when Bob’s gathered information may be neglected when the plan that he has done has been a success or it has been a failure.

3 0
3 years ago
Suppose a competitive market has a downward-sloping demand curve and a horizontal supply curve. If the supply curve shifts downw
8090 [49]

Answer: (a) Fall

(b) Increase

(c) Increase

(d) Unchanged

Explanation:

Suppose there is a competitive market with a downward sloping demand curve and horizontal supply curve. In a competitive market there are large number of buyers and sellers. So, if there is a downward shift in the supply curve, as a result equilibrium price will fall, equilibrium quantity will increase, consumer surplus now become larger and producer surplus remains the same because of the horizontal supply curve.

4 0
3 years ago
Read 2 more answers
Other questions:
  • In thinking about the "color of money," which color would correspond to a new video game system charged on a credit card when yo
    5·2 answers
  • Your roommate, Allison Albright, is a non-business major. When she discovered that you are taking a course in Organizational Beh
    15·1 answer
  • The English publisher of a book called Cambridge gave a New York publisher permission to sell that book any place in the world e
    8·1 answer
  • Misty Company reported the following before-tax items during the current year: Sales revenue $ 1,200 Selling and administrative
    11·1 answer
  • In order to obtain a job you may have to go through the typical sequence of interviews, which includes
    11·1 answer
  • Assume that the company wanted to do some advertising in the states where the candidates were campaigning about the benefits of
    13·1 answer
  • "It is ethical for a firm to have a policy to sell goods or services to people who cannot afford them or to people who should no
    13·1 answer
  • German brothels recently began offering a monthly subscription service for multiple purchasers. If you thought that the brothels
    10·1 answer
  • Carmel Corporation is considering the purchase of a machine costing $52,000 with a 4-year useful life and no salvage value. Carm
    5·1 answer
  • Why aren't all people paid the same amount in factor payments for the resources they provide?
    8·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!