The put-call parity rule can be expressed as C - P = [f0(T) - X] (1 + r) - T. Consider the following data: f0(T) = 102, X = 100, r = 0.1, T = 0.25, C = 4, and P = 1.75. A few calculations will show that the prices do not conform to the rule. Suggest an arbitrage strategy and show how it can be used to capture a risk-free profit.
Assume that there are no transaction costs. Be sure your answer shows the payoffs at expiration and proves that these payoffs are riskless?