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Please explain. Case 3 In this question, the stock does not pay dividends. The...

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Please explain.

Case 3 In this question, the stock does not pay dividends. The prices of two American puts P1 and P2 with strikes Ki and K2, respectively (and Ki ? K2), with the same expiration T (and on the same stock S) satisfy the following arbitrage inequality 1005, K,-100, K2 = 105 and e-r (T-to) . Suppose that at time to (today), So All symbols have their usual meanings. The American puts have prices today of 0.99. = 5 and P2 = 11. Formulate an arbitrage strategy to take advantage of the above mispricing

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