QUESTION 4 (7 points) There exist call and put options on one share of Options 'R'Real Inc. (ORR). Each option is EUROPEAN, expires exactly one year from today, and has an exercise price of $55 per share. The current share price of ORR is $55, and ORR never pays dividends. The current riskless borrowing and lending interest rate from today until the options expiration date is 10%. The market price of the put price is $5. There are no transaction costs and no taxes. a) Calculate the equilibrium call price. (1 point) b) Suppose that the market price of the put price is $5 and the market price of the call is $5. If possible, design a profitable arbitrage, show that it is riskless, and calculate the profits. (3 points) Suppose that the market price of the put price is $5 and the market price of the call is $14. If possible, design a profitable arbitrage, show that it is riskless, and calculate the profits. (3 points) QUESTION 4 (7 points) There exist call and put options on one share of Options 'R'Real Inc. (ORR). Each option is EUROPEAN, expires exactly one year from today, and has an exercise price of $55 per share. The current share price of ORR is $55, and ORR never pays dividends. The current riskless borrowing and lending interest rate from today until the options expiration date is 10%. The market price of the put price is $5. There are no transaction costs and no taxes. a) Calculate the equilibrium call price. (1 point) b) Suppose that the market price of the put price is $5 and the market price of the call is $5. If possible, design a profitable arbitrage, show that it is riskless, and calculate the profits. (3 points) Suppose that the market price of the put price is $5 and the market price of the call is $14. If possible, design a profitable arbitrage, show that it is riskless, and calculate the profits. (3 points)