The price of a European put that expires in 6 months and has a strike price of $10 is $2. The underlying stock price is currently valued at $9, and the risk-free rate is 2% p.a.

a) What is the price of a European call with the same strike price and maturity as the put?

b) Suppose that the European call is currently priced at $1.20. Devise a strategy to arbitrage from this situation. What is the net payoff of your arbitrage strategy at t=0 and at t=T (i.e. at the maturity of the options)? Explain what happen at t=T.

c) Ignore part (b). Suppose that the European call is currently priced at $1.00. Devise a strategy to arbitrage from this situation. What is the net payoff of your arbitrage strategy?