Given the following information concerningEuropeanoptions on a non-dividend paying stock:

Call price

$3.80

Put price

$3.00

Strike price

$30.00

Time to expiry

3 months

Stock price

$30.90

Risk free rate

5% p.a. (continuously compounded)

Show that put-call parity is violated.Use the table below to indicate the action that is required to earn an arbitrage profit.Based on one stock, calculate the arbitrage profit available.

Action at t=0

(Circle choice)

Cashflow

Call

buy/sell

Put

buy/sell

Stock

buy/sell

Cash

borrow/invest

Action at t=3 months

If Stock price < $30

If Stock price > $30

Arbitrage profit