Put-call parity states that for European call (C) and put (P) options on the same Stock Index (S), with the same exercise price (K), and time to maturity, T years then if there is a continuous dividend yield, d, then:

P₀ + S₀e^-dT = C₀ + Ke^-rT

The following data is available for trading options T = 1, r = 0.03, d = 0.025, K = 95, S = 100, American Call = $5.25 (The underlying is also not expected to pay out any dividends in the next six months).

a)Determine if there is currently an arbitrage opportunity. If so, explain what transactions you would undertake and the arbitrage profit

b)Do you think this option will be exercised at any time before T = 1? Explain your answer.