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Construct a cash flow table

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This is my question from Fin Modelling Techniques course, could you help me to solve this question:

GPT group is an Australian real estate investment trust, with shares currently (at time of writing) trading at $4.18 (assume this is the stock price at time 0). Consider a European call and European put on this stock, both with strike price $4 and the same maturity date; the call is currently selling for $0.5, and the put for $0.27.

(a) Assuming put-call parity holds, what is the present value of the strike? Given this, what is the return on a risk-free investment over this time period (i.e., R)?

(b) Construct a cash flow table where, at time zero, you short sell one call, buy one put, buy one share and borrow some money (so that your total cash flow at this time is 0). Construct a subsequent cash-flow tables that resolve this investment at maturity.

(c) Is there an arbitrage opportunity here?

Reference no: EM132602512

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