Problem 1.4. A stock is $50(no dividend). The value of European call option with a strike price of $47.50 and maturity of 100 days is $4.38. The 100-day risk free interest rate is 5% assuming 365-day year. 1. For a European put option with a strike price of $47.50, and maturity of 100 days, you are quoted a price of $2.13. Is this consistent with the absence of arbitrage? Justify your answer 2. If Arbitrage profit is possible, explain how would you construct an arbitrage portfolio to take advantage of the situation ? 3. Using call and stock prices mentioned above, draw a diagram showing the variation of an investor's profit and loss with the terminal stock price for a portfolio consisting of: (a) Long on one stock and short on one call (6) Long on two stock and short on one call 4. What is the difference between a strangle and straddle