Financial Risk Manager Part 1

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Explanation:

Check put-call parity:

C + PV(K) = 4.00 + 21e^{-0.04} \approx 4.00 + 20.18 = 24.18

P + S = 5.00 + 20.00 = 25.00

Since $P + S > C + PV(K)$ , the combination put + stock is overpriced relative to call + bond.

Arbitrage: sell the expensive side and buy the cheap side.

Initial arbitrage profit:

25.00 - 24.18 = 0.82

So the trade collects about $0.82 today, with no risk and no net future profit/loss at maturity.

Correct answer: C ($0.82).

Explanation:

Check put-call parity:

C + PV(K) = 4.00 + 21e^{-0.04} \approx 4.00 + 20.18 = 24.18

P + S = 5.00 + 20.00 = 25.00

Since $P + S > C + PV(K)$ , the combination put + stock is overpriced relative to call + bond.

Arbitrage: sell the expensive side and buy the cheap side.

Initial arbitrage profit:

25.00 - 24.18 = 0.82

So the trade collects about $0.82 today, with no risk and no net future profit/loss at maturity.

Correct answer: C ($0.82).

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MManit

Last updated: April 18, 2026 at 11:32

Zero

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$0.42

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$0.82

100.0%

$0.86