1. An arbitrageur looking for opportunities to arbitrage finds the following situation in the market. The sum of the price of the put option and the price of the stock is greater than the sum of the price of the call option and the present value of the Treasury bill. Explain how he would gain from the arbitrage and explain in general terms how much risk free profit he is likely to make. 2. An arbitrageur looking for opportunities to arbitrage finds the following situation in the market. The sum of the price of the put option and the price of the stock is less than the sum of the price of the call option and the present value of the Treasury bill. Explain how he would gain from the arbitrage and explain in general terms how much risk free profit he is likely to make. 3. An arbitrageur looking for opportunities to arbitrage finds the following situation in the market. The sum of the price of the put option and the price of the stock is more than the sum of the price of the call option and the present value of the Treasury bill. Explain how he would gain from the arbitrage and explain in general terms how much risk free profit he is likely to make. 4. The price of stock in the market is $ 200. The price of the call option with a strike price of $200 and expiration of 6 months is $ 12.50. The price of the put option with the same expiration as the call option is $ 15. The time remaining to expiration is 3 months. What is the risk free rate? 5. The price of stock in the market is $ 150. The price of the call option with a strike price of $150 and expiration of 3 months is $ 9. The time remaining to expiration is 3 months. The risk free rate is 8%. Find the price of the put option. 6. In problem # 5 above, if the price of the call rises to $ 12 because there is a belief that the stock market is about to explode on the upside, and the price of the put as calculated in problem # 5 above, find the amount of risk free profit an arbitrageur could make.
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