The stock price of Top Gloves Bhd today is RM3.00. The call option on this stock with a strike price of RM2.00 and a 60 days maturity has an option premium of RM1.50. The put option with a strike price of RM2.00 and 60 days expiry possess a premium of RM1.20. The risk-free rate per annum is 5%.

Required:

(a)Prove that there is mispricing.(6 marks)

(b)Suggest a suitable arbitrage strategy for this mispricing.(4 marks)