Problem 2 [4 points]: The price of a European call that expires in six months and has a strike price of $30 is $2. The underlying stock price is $29, and a dividend of $0.50 is expected in two months amd again in five months. The term structure is flat, with all risk-free interest rates being 10 percent per year.
(a) What is the price of a European put option that expires in six months and has a strike price of $30?
(b) Explain carefully the arbitrage opportunities that are available if the European put price is $3.00. Identify clearly the strategy and show that there is no possibility of losing money and that you get a positive profit today or in the future.Get Finance homework help today
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