Suppose a Trader Quotes a Call Price of $4

question 17

Multiple Choice

Suppose a trader quotes a call price of $4.50.Then,you can make an immediate arbitrage profit of:

• A) $1.50 by buying the synthetic call and selling the market-quoted call
• B) $1.50 by selling the synthetic call and buying the market-quoted call
• C) $7.66 by buying the synthetic call and selling the market-quoted call
• D) $7.66 by selling the synthetic call and buying the market-quoted call
• E) None of these answers are correct.

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Definitions:

True Null Hypothesis

The hypothesis that there is no effect or no difference, and it truly reflects the reality in the population sampled.

Rejecting

In statistics, it often refers to the act of discarding the null hypothesis based on the evidence of a test.

Type I Error

A Type I error occurs when a true null hypothesis is incorrectly rejected, often denoted as a false positive in hypothesis testing.

Null Hypothesis

A statement used in statistics that proposes there is no significant difference or effect.