1. A15-month European put option's underlying stock price is$38,while the strike price is$45and a dividend of$2is expected in7months.Assume that the risk-free interest rate is9%per annum with continuous compounding for all maturities.

i)If the put option is currently selling for$5,what arbitrage strategy should be implemented?

ii)With the above arbitrage strategy,how much profit does the arbitrageur generate?

i) arbitrage strategy = short the put and buy the stock

i)arbitragestrategy=short the put and shortthe stock

1. 2)arbitragestrategy=buythe put and shortthe stock
2. 2)arbitragestrategy=buythe put and buythe stock
3. 3)arbitrageur gain=$1.11in present value terms
4. 3)arbitrageur gain=$2.11in present value terms
5. 3)arbitrageur gain=$2.58in present value terms
6. 3)arbitrageur gain=$1.58in present value terms