Problem 4 (15 points):

Suppose you are given the following data:

2-month option on XYZ stock:

UnderlyingS= 48.1

StrikeX= 50

Put price = $2.2

a)What should be the price of call to prevent arbitrage if 2-month interest rate is 6% p.a.?

b)If the actual call price was $1.3 how would you implement an arbitrage opportunity?

c)Compute your payoff at maturity.