Question: Given: C = $4.65, P = $3.20, S = $26, K = $25, T = 2 months, r = 9% p.a . a. What would

Given: C = $4.65, P = $3.20, S = $26, K = $25, T = 2 months, r = 9% p.a.

a. What would you do to exploit these quotes? (List the transactions.) What would be your riskless arbitrage profit?

b. How could you synthetically short-sell stock using only stock options and borrowing or lending at the risk-free rate? Would you be better off actually short-selling the stock, or synthetically short-selling it using options?

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