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Business, 19.04.2021 15:50 perezsamantha3oqr0za

One share of equity in Mullen Inc. is currently trading at $49 per share. In one year, the price is expected to (1) rise to $65. or (2) fall to $40. You are interested in a call option on Mullen, Inc. The option has a strike price of $54 and expires in 1 year. The current risk-free rate for the year is 3%. As you can calculate, the binomial price for this option is about $4.47. However, an options trader is quoting a price of $4.75 to buy or sell the option. And you know how to arbitrage this. You take a long position in the replicating portfolio, by purchasing shares of Mullen, Inc. and borrowing Sl 7.09, and you short (sell) the option for $4.75. How many shares of Mullen, Inc. did you purchase

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One share of equity in Mullen Inc. is currently trading at $49 per share. In one year, the price is...
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