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QUESTION 12 Question 2.1 (10 marks): A European call option and put option on a stock both have a strike price of $50 and an

QUESTION 12

  1. Question 2.1 (10 marks):

    A European call option and put option on a stock both have a strike price of $50 and an expiration date in three months. It is observed that the call option sells for $4 while the put option sells for $5. The risk-free interest rate is 10% per annum; the current stock price is $48. Identify the arbitrage opportunity open to a trader and show working calculations.

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