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GPT group is an Australian real estate investment trust, with shares currently trading at $6.35 (assume...

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Finance

GPT group is an Australian real estate investment trust, withshares currently trading at $6.35 (assume this is the stock priceat time 0). Consider a European call and European put on thisstock, both with strike price $6.25 and the same maturity date; thecall is currently selling for $0.21, and the put for $0.11.

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

(b) Construct a cash flow table where, at time zero, you shortsell one call, buy one put, buy one share and borrow some money (sothat your total cash flow at this time is 0). Construct subsequentcash-flow table(s) that resolve this investment at maturity.

(c) Is there an arbitrage opportunity here?

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