USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 95

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The current stock price of ABC Corporation is $53.50. ABC Corporation has the following put and call option prices that expire six months from today. The risk-free rate of return is 5 percent, and the expected return on the market is 11 percent.

-Refer to Exhibit 14.6. How could an investor create arbitrage profits?

• A) sell the stock short, write a put, buy a call, and invest the proceeds at the risk-free rate
• B) buy the stock, write a put, buy a call, and invest the proceeds at the risk-free rate
• C) sell the stock short, buy a put, write a call, and invest the proceeds at the risk-free rate
• D) buy the stock, write a put, buy a call, and borrow the strike price at the risk-free rate
• E) sell the stock short, write a put, buy a call, and borrow the strike price at the risk-free rate.

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Definitions:

F-Test Statistic

A statistical method for comparing the variances from two different populations to ascertain if there is a significant difference between them.

Coefficient Of Determination

A statistical measure, often denoted as R^2, that represents the proportion of the variance for a dependent variable that's predictable from the independent variables in a model.

Adjusted Coefficient

Refers to statistical measures that have been modified to account for certain factors or variables, enhancing the comparability or accuracy of the results.

Independent Variables

Variables in an experiment that are manipulated or categorized to determine their effect on dependent variables.