(b) As a risk manager, you are considering trading in the option market. Among the options you are looking at are European put and call options with an exercise price of 46 expire in 100 days. The underlying is priced at 50 and makes no cash payments during the life of the options. The risk-free rate is 4.5 percent. The put is selling for 4.75 and the call is selling for 8.00.

Identify the mispricing by comparing the price of the actual call with the price of the synthetic call. Demonstrate how an arbitrage transaction is executed using a payoff table.