# Task  In this assignment, you will solve problems on No-arbitrage Restrictions,

In this assignment, you will solve problems on No-arbitrage Restrictions,

In this assignment, you will solve problems on No-arbitrage Restrictions, Early Exercise and Put-Call Parity.
Instructions
Use your textbook to answer the following questions from Chapter 9:

Exercise 12 and 13.

Please, use the full computing power of Excel.

12. The current price of a stock is \$60. The one-year call option on the stock at a strike of
\$60 is trading at \$10. If the one-year rate of interest is 10%, is the call price free from
arbitrage, assuming that the stock pays no dividends? What if the stock pays a dividend
of \$5 one day before the maturity of the option?

13. The current price of ABC stock is \$50. The term structure of interest rates (continuously
compounded) is flat at 10%. What is the six-month forward price of the stock?
Denote this as F. The six-month call price at strike F is equal to \$8. The six-month
put price at strike F is equal to \$7. Explain why there is arbitrage opportunity given
these prices.