1. Consider the following information on put and call options on a stock: Call price, _C0 = $4.50; Put price, _P0 = $6.80; Exercise price, X = $70; Days to option expiration = 139; Current stock price, S0 = $67.32; Risk?free rate, r = 5 percent. (Assume 365 days per year in your calculations)

a) Use the putcall parity to calculate price of a synthetic bond.

b) Identify any mispricing by comparing the actual price with the synthetic price. What would you do to exploit this arbitrage opportunity?