Is there an arbitrage opportunity

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You are an arbitrageur working for Century Arb. hedge fund. At 10:30am you are observing the following prices/rates. A European call option on XYZ Corp. stock maturing in 3 months with the strike price of $60 per share is selling for $5 per share, while a European put option on XYZ Corp.'s stock maturing in 3 months with the strike price of $60 per share is selling for $4.50 per share. Current XYZ Corp's stock price is $56 per share and the risk-free interest rate is 10% per annum with continuous compounding. 

  1. Is there an arbitrage opportunity? Answer yes or no. Use Put-Call parity to prove your answer.
  2. If there is an arbitrage opportunity identified in part (a) provide a detailed step-by-step description of your trading strategy and calculate your final profit per share.

Reference no: EM133109583

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