Question $3$

Consider a European call option and a European put option that have the same under$-$

lying stock, the same strike price $K,$ and the same expiration date $T.$ Let $C$ denote the Call

premium, $P$ denote the Put premium, and $S$ denote the current stock price. Suppose the

risk$-$free borrowing rate $r_{b}is$ greater than the risk$-$free lending rate $r_l,i.e.,r_b>r_l.$

Suppose $r_{l}C.$ Are there arbitrage opportunities? $Ifso,$ describe your

trading strategy; otherwise, list a condition involving $r_l,$ under which $an$ arbitrage strategy

exists and describe the strategy.