In the body of this chapter disequilibrium of the following

In the body of this chapter, disequilibrium of the following equation indicated an opportunity for a
riskless arbitrage:The equation was illustrated as follows. A stock sells for $105; the strike price
of both the put and call is $100. The price of the put is $5, the price of the call is $20, and both
options are for one year. The rate of interest is 11.1 percent, so the present value of the $100
strike price is equal to $90. Given these values, the equation holds:0 = $105 + 5 - 20 - 90or$105
+ 5 = $20 + 90.The opportunity for the riskless arbitrage was then illustrated by two cases, one
in which the call was overpriced ($25) and one in which the put was overpriced ($10). For each
of the following sets of values, verify that a riskless arbitrage opportunity exists by determining
the profit if the price of the stock rises to $110, falls to $90, or remains unchanged at
$105.When will the opportunity for arbitrage cease, and what are the implications for the prices
of eachsecurity?
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In the body of this chapter disequilibrium of the following
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