Which One of the Following Represents an Arbitrage Opportunity

question 89

Multiple Choice

Which one of the following represents an arbitrage opportunity?

• A)stock price of $18 and strike price of $20
• B)call price of $.40 and put price of $.40
• C)PCP-implied put price of $.30 and call price of $.28
• D)PCP-implied put price of $.30 and put market price of $.31
• E)PCP-implied call price of $.20 and a put market price of $.22

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Definitions:

Capital Structure

The composition of a firm's financing through a mix of debt, equity, and other financial instruments, affecting its risk and valuation.

Dividend Payout Ratios

The fraction of earnings paid to shareholders in dividends, usually expressed as a percentage.

Pretax Cost of Debt

The rate of interest a company pays on its borrowings before tax adjustments, often used in calculating the cost of capital for a company.

Retained Earnings

Profits that a company has kept or retained rather than paid out as dividends.