1. Suppose you have the following information concerning a particular options.

Stock price, S = RM 21
Exercise price, K = RM 20
Interest rate, r = 0.08
Maturity, T = 180 days = 0.5
Standard deviation, σ = 0.5

The Call option value is 3.77. and put option value is 1.99

Suppose a European put options has a price higher than that dictated by the putcall parity.

a. Outline the appropriate arbitrage strategy and graphically prove that the arbitrage is riskless. Note: Use the call and put options prices above)
b. Name the options/stock strategy used to proof the put-call parity.
c. What would be the extent of your profit in (a) depend on?