Question: 4.[8 points) Consider a continuous interest rate r, strike prices L > K, a stock S, and the maturity T. Denote by PF (k) the

4.[8 points) Consider a continuous interest rate r, strike prices L > K, a stock S, and the maturity T. Denote by PF (k) the price of a European put option with strike price k. (a) (4pts) Find an arbitrage if pF (L) - P(K) > e-FT (L-K). (b) (4pts) If no put is exercised, how much profit do you make at maturity T? Use the values p (L) = 14, PE(K) = 6, L = 40, K = 30, r = 5% and T = 7 for your computation

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