Suppose a stock is currently trading for $ 59.00, and in one period will either go up by 19 % or fall by 11 %. If theone-period risk-free rate is 3.1 %

, what is the price of a European put option that expires in one period and has an exercise price of $ 59.00$59.00? Suppose the option actually sold in the market for $ 8.00

. Describe a trading strategy that yields arbitrage profits.

A.

The arbitrage trading opportunity will involve selling(short) the option and selling(short) the replicating portfolio.

B.

The arbitrage trading opportunity will involve borrowing at therisk-free rate to buy the option and buy the replicating portfolio.

C.

The arbitrage trading opportunity will involve buying the option and selling(short) the replicating portfolio.

D.

The arbitrage trading opportunity will involve selling(short) the option and buying the replicating portfolio.