1a)

Suppose a put option with a strike price of $65 has a premium of $11, while another put on the same underlying stock has a strike price of $70 and a premium of $9. Both options expire at the same time. In this situation, an arbitrageur would...

Answers:	a. do nothing because arbitrage is not possible.
	b. buy both put options.
	c. buy the 70-strike put and sell the 65-strike put.
	d. buy the 65-strike put and sell the 70-strike put.
	e. sell both put options.

1b)

Suppose a put option with a strike price of $30 has a premium of $7, while another put on the same underlying stock has a strike price of $35 and a premium of $11. Both options expire at the same time. In this situation, an arbitrageur would...

Answers:	a. buy the 35-strike put and sell the 30-strike put.
	b. do nothing because arbitrage is not possible.
	c. buy both put options.
	d. buy the 30-strike put and sell the 35-strike put.
	e. sell both put options.

1c)

Suppose a stocks price is $52, and the continuously compounded interest rate is 4%. The stock does not pay dividends. A 9-month $50-strike European call costs $7.12, and a 9-month $50-strike European put costs $4.33. In this situation, an arbitrageur would...

Answers:	a. sell the stock, sell the call, and buy the put.
	b. buy the stock, sell the call, and buy the put.
	c. buy the stock, buy the call, and sell the put.
	d. sell the stock, buy the call, and sell the put.

Please explain the correct answers. Thank you