The following pricing information presents an arbitraging opportunity.

• The current market price of a stock is $60.
• The price of a 1-year, $55-strike European call option on the stock is $11
• The price of a 1-year, $55-strike European put option on the same stock is $2.
• The risk-free interest rate is 10% per annum.

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.