HEC index is 3200, the continuously compounded risk-free rate is 4%, and the dividend yield is

0%. A 1-year European call with strike of 3300 costs $90 and a 1 year European put with

strike of 3300 costs $40.

A. Demonstrate an arbitrage strategy.

B. Compute the rate of return of the arbitrage strategy in (A) held until the expiration of the

options.

C. Assume the call option is correctly priced. What price should the put option be in order to

eliminate the arbitrage?