Question: Given: C = $4.00, P = $6.00, S = $42, K = $45, T = 3 months, r = 8%. The option contracts are written

Given: C = $4.00, P = $6.00, S = $42, K = $45, T = 3 months, r = 8%. The option contracts are written on 100 units of the underlying asset. (Show work.)

What would you do to exploit these quotes? (List all transactions you would make.) What would be your riskless profit?

How could you synthetically sell a call option? What would be the cash flow from doing this? (i.e., What is the synthetic call premium?)

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