Question: Problem 4 (25 points) Suppose that stock A is currently selling at $105. A call option on stock A expiring after 3 years is selling

Problem 4 (25 points) Suppose that stock A is currently selling

Problem 4 (25 points) Suppose that stock A is currently selling at $105. A call option on stock A expiring after 3 years is selling for $8 with exercise price $120. A put option on stock A with same exer- cise price and expiration date is selling for $13. The risk-free rate is 6% in the following years. (a) Construct the payoff table for protective put strategy. (8 points) (b) Does the put-call parity hold? Explain. If not, construct a arbitrage investing port- folio. (12 points) (c) Suppose that put-call parity has to hold, what should the risk-free rate be? (5 points)

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