Arbitrage Opportunity

[v'nod47]

Hi Traders,
Suppose current stock price is Rs.90, exercise price is Rs.100,annual compound interest is 5%,Rs.1 is the dividend at the next instant and quoted put price for the 1 year option is Rs.6.What would be arbitrage opportunity here and your arbitrage strategy if (a)Option is American (b)Option is European?

 

[Choice100]

considering all the factor value given to be true..

there is arbitrage in given condition

buy stock at 90
buy put at 6 (100 strike)
dividend gain 1
interest Cost 4.8

Theoretically Arbitrage gain is of 0.2 which would be eventually eaten up buy transactional cost.

 

[v'nod47]

Hi,
I am very sorry to say that your answer is wrong. There is no interest cost as such. By the way, if your answer is for American option, then when you would exercise your option?
However, thanks for attempting this question.
Happy Trading

 

[Jinti]

Can anybody elaborate in simple (Aam Aadmi) language about the subject of this thread.