only part 3

3. (20 points) Consider a European put option on a non-dividend-paying stock with a strike price of $100 and an expiration in one year costs $1.31. The stock price is $90 and the risk-free rate is 8% per year. (1) What is the lower bound of the put option? (2) Is the put option over-valued or under-valued? (3) What strategy should an arbitrageur implement in order to take advantage of this opportunity, and how much is the profit? Use the following table to show your positions on date t (today) and the expiration day T. Cash flow at T Action Cash flow at t if SrZX if Sr