Provide your answer in written form.

Seperate the answer of b. and c.

Dont mixed together.

b. You are given that the market European put option for n years is Po, market European call option for n years is Co. Both European options are having the same strike price K. The annual effective interest rate is r continuously compounded, and the continuous dividend yield is 8. Suppose that the arbitrage-free put value is Po + Co. Determine the arbitrage profit today by demonstrating the arbitrage. (10 marks) c. Using the put-call parity to determine the two factors that caused the American call option on non-dividend paying stock not reasonable to exercise