Suppose you have the following information concerning a particular options. Stock price, S = RM 21 Exercise price, K = RM 20 Interest rate, r = 0.08 Maturity, T = 180 days = 0.5 Standard deviation,  = 0.5 a. What is correct of the call options using Black-Scholes model?  b. Compute the put options price using Black-Scholes model? c. Outline the appropriate arbitrage strategy and graphically prove that the arbitrage is riskless. Note: Use the call and put options prices you have computed in the previous question (a) and (b) above.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter20: Financing With Derivatives
Section20.A: The Black-scholes Option Pricing Model
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II. Suppose you have the following information concerning a particular options.
Stock price, S = RM 21
Exercise price, K = RM 20
Interest rate, r = 0.08
Maturity, T = 180 days = 0.5
Standard deviation,  = 0.5

a. What is correct of the call options using Black-Scholes model? 
b. Compute the put options price using Black-Scholes model?

c. Outline the appropriate arbitrage strategy and graphically prove that the arbitrage is riskless.
Note: Use the call and put options prices you have computed in the previous question (a) and (b) above.
b. Name the options/stock strategy used to proof the put-call parity. 
c. What would be the extent of your profit in (a) depend on?

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