Assume that the premiums for European options on TRS stock with 6 months to expiration are given by:

where K is an unknown strike price.

The continuously compounded risk-free rate is 5%, and the market does not admit arbitrage opportunities. Suppose we simultaneously enter today (time t=0) into the following two sets of transactions:

(I) Selling a 100-strike call and buying a 100-strike put

(II) Buying a K-strike call and selling a K-strike put

a) Is K>100K>100 or is K

b) Verify that the payoff of this combined position at expiration does not depend on the spot price of TRS stock at expiration.

c) By looking at the cashflow of this combined position today and the cashflow at expiration, what is the value of K such that this position has the same rate of return as the risk-free asset?

Strike Call Put 100 $12.385 $9.916 K 8.370 15.654 Strike Call Put 100 $12.385 $9.916 K 8.370 15.654