You are provided with the following information on a put can a call option contract Expiration = 6 months. Stock spot price = $53 Strike price = $50. Risk free rate (continuous compounding) = 6%. Put option contract Expiration = 9 months. Stock spot price= $45. Strike price = $49. Risk free rate (continuous compounding) = 5%

2.1 Use the information provided and for both the call and put option contracts, calculate the upper and the lower bounds for:

a) European option contract (2)

b) American option contract (2)

2.2 What arbitrage opportunity exist if the 6-month European call option price is $2. Explain what profit can be made if St is higher than the strike price at maturity. (2)

2.3 What arbitrage opportunity exist if the 9-month European put option price is $2. Explain what profit can be made if St is higher than the strike price at maturity.