can somone explain this more clealry. especially thr put call parirty math part.

Question 6 (5 points) Consider again the same European put and call options on GE stock from Question 5, each having an exercise price of $17.5 as well as the same expiration date of June 2018. Suppose again that the current price of GE stock is $18.75. Assume again, as in Question 5, that a 6-month riskless investment (i.e., till the options' expiration date) currently yields 1% (annualized). a. Given this information, is there one (or perhaps more) arbitrage opportunity? If there is a profit opportunity, how would you exploit it? Is it truly riskless? Explain and show your work. Answer: To answer the question, one would need to know whether GE is going to be paying dividends during that time. Regardless, we can use put-call parity. In theory: c,+ X/(1+ p, + S re: S, $ 18.75 P $ 4.71 c,= $ 2.03 X-$ 17.50, so X/(1+r)= $17.41 X/(1+r)" Clearly, if GE is paying no dividends, the put is overvalued - to the tune of over $4. There is no way GE will pay dividends of that magnitude (almost 25% of the current stock price) in the next 6 months. Thus, the optimal strategy would be to short the put and the stock, and buy a call and the bond - assuming, of course, you can find shares to borrow (for shorting)