The following pricing information presents an arbitraging opportunity.

• A non-dividend-paying stock is currently trading at $85 per share;
• A European call option on one share of this stock has a strike price of $70 and is trading at $18. It expires in 1 year.
• You may borrow or lend at risk-free rate of 8% per year.

Round your calculations to the nearest $0.01.

1) Explain in details what positions one should create to take advantage of this opportunity.

2) Calculate the size of profits to be made from such a strategy. Show your work to earn the full score.