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(7 points) The price of XYZ today is $50. You can borrow or lend at an interest rate of 5% per year. The price

(7 points) The price of XYZ today is $50. You can borrow or lend at an interest rate of 5% per year. The price of a European put option on XYZ with a strike price of $55 and maturity of 6 months is $7. a) Compute the fair price of a European call option on XYZ with a strike price of $55 and maturity of 6 months. b) Suppose the market price of the call option in part (a) of this question is $5. Construct an arbitrage strategy. What is the arbitrage profit for your strategy?

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