1. A stock is selling for $18.50. The strike price on a call, maturing in 6 months, is $20. The possible stock prices at the end of 6 months are $22.50 and $15.00. Interest rates are 6.0%. How much money would you borrow to create an arbitrage on a call trading for $2.00?
A) $2.54
B) $4.85
C) $6.60
D) $8.85
2. Comment on the significance of the Sherman Anti-Trust Act and what applicability does it hold for businesses today versus businesses that were in existence at the time the act was signed into law. Please provide an example to illustrate your answer.
3. Assume that interest rate parity exists. If the forward rate is an unbiased forecast of the future spot rate , explain the implications from borrowing a foreign currency (versus local financing) over time.