The following financial instruments are available:

• A stock with a current price of $50.
• A zero-coupon bond which pays $60 in one year. The continuously-compounded discount rate is 5% and the price of the zero-coupon bond today is $57.07.
• A European call option on the stock with a maturity of one year and an exercise price of $60. The price of the call option today is $1.
• A European put option on the stock with a maturity of one year and an exercise price of $60. The price of the put option today is $7.

If you want to exploit a risk-free arbitrage opportunity using these instruments, which strategy would you use? What would be the risk-free profit of that strategy today?

CHOICES:

Strategy: Buy the stock and the put, sell the call and the bond. Profit: $1.07

Strategy: Buy the stock and the call, sell the put and the bond. Profit: $13.07

Strategy: Sell the stock and the put, buy the call and the bond. Profit: $1.07

Strategy: Sell the stock and the bond, buy the call and the put. Profit: $99.07

These instruments do not offer a risk-free arbitrage opportunity