The Current Price of YBM Stock S Is $101

question 4

Multiple Choice

The current price of YBM stock S is $101.European options with a strike price K = $100 and maturing in T = 6 months trade on YBM.The continuously compounded,risk-free interest rate r is 5 percent per year.If the call price c is $7.50 and the put price p is $4.60,then the arbitrage profits that you can make today by trading one contract of each option (one contract is based on 100 shares) are:

• A) 0
• B) $57
• C) $112
• D) $198
• E) None of these answers are correct.

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Definitions:

Obligation

A duty or commitment to pay money or perform some action.

Equivalent

Equal in value, amount, function, meaning, or status; often used in mathematics to describe expressions or amounts that are the same when compared or evaluated.

Compounded Quarterly

Refers specifically to the computation of interest at four intervals in a year, on the initial investment alongside the interest from preceding periods.

Repaid

The act of paying back money previously borrowed from a lender.