Question 2. European call and put option prices on a stock with 4 months (120 days) to maturity are shown below. The prevailing short-term interest rate is 5% per year.

Exercise Price	97.50	100.00	102.50
Call price	8.39	6.73	6.01
Put price	4.14	4.73	6.33

Find the current price of the stock using the options at the exercise price of 100. (Hint: use the put-call parity) (4)

If the options at the exercise price of 100 are correctly priced, is there any arbitrage opportunity at the exercise price of 97.5? Answer this by finding the amount of arbitrage profit available at the exercise price of 97.5. (Hint: Use the stock price found in part (A) to find the value of both sides of the put-call parity. If the two sides are not equal, then there is some arbitrage opportunity.) (3)

What would be the strategy to take advantage of arbitrage opportunity at the exercise price of 97.5, if there is any? (Hint: State whether it is required to be long/short in all the 4 instruments (put, call, stock, bond) that are used in the put-call parity) (3)

If the options at the exercise price of 100 are correctly priced, is there any arbitrage opportunity at the exercise price of 102.5? Answer this by finding the amount of arbitrage profit available at the exercise price of 102.5. (3)

What would be the strategy to take advantage of arbitrage opportunity at the exercise price of 102.5, if there is any? (3)