If the call option’s exercise price is $120. The current stock price is $100. When the market is good, the stock’s price

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If the call option’s exercise price is $120. The current stock
price is $100. When the market is good, the stock’s price after 1
year is $130. When the market is bad, the stock’s price is $90. The
current interest rate is 10%. Assuming that the call’s current
price is $9.0, the following table represents the strategy of
constructing an arbitrage portfolio.

If The Call Option S Exercise Price Is 120 The Current Stock Price Is 100 When The Market Is Good The Stock S Price 1 (76.25 KiB) Viewed 55 times

1. Option: 2. Stock: 3. T-bill Actions (X1*) (X2*) (X3*) Initial cash flow (X4) (X5) (X6) (X7) Cash flow in 1 year S1=$90 (X8) (89) (X10) (X11) S2=$130 (X12) (X13) (X14) (X15)