European call option and european put option

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Consider a European call option and a European put option. Both are on the same stock, both have a strike price of $130 and an expiration date in 9 months. The current price of the call option is $7.51 and the current price of the put is $11. The risk-free rate is 5% per annum for all maturities with continuous compounding, and the current stock price is $125. A dividend of $2 per share is expected in 3 months.

(a) Does the put-call parity hold?

(b) If the put-call parity does not hold, describe in detail (step-by-step) the strategy which will lead to an arbitrage profit. How much is this profit per share?

Reference no: EM133074823

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