ONLY PART 3

A European call option and put option on a stock both have a strike price of $95 and an expiration date in one year. The call option sells for $16. The risk-free interest rate is 10% per annum, the current stock price is $100. (1) Use put-call parity to find the price of the put option. (2) If the put option sells for $0.96 in the marketplace, is it over-valued or under-valued? (3) Identify the arbitrage opportunity open to a trader. How much is the profit? Use the following table to show your positions on date t (today) and the expiration day T. Action Cash flow at t Cash flow at T if STX, St=120 if St