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Stock and the call prices change to start trading

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Consider a stock with European call and put options with exercise prices of $100 maturing one year later. The stock, call, and put are trading for $99, $4 and $2.50 respectively. Stock does not pay dividends and interest rates are 2%.

a. Are you able to make arbitrage profits? If so, how?

b. Suppose the stock and the call prices change to start trading for $90 and $3 respectively. What should be the price of the put to preclude arbitrage profits?

Reference no: EM131840401

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