Identify the mispricing by comparing price of actual call

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Reference no: EM131445412

European call and put options with an exercise price of 45 expire in 115 days. The underlying is priced at 48 and makes no cash payments during the life of the options. The risk free rate is 4.5%. The put is selling for 3.75 and the call is selling for 8.00.

a. Identify the mispricing by comparing the price of the actual call with the price of the synthetic call.

b. Based on your answer in Part A, demonstrate how an arbitrage transactions is executed.

Reference no: EM131445412

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