Consider a European put option and a European call option on the same stock. Both options have a strike price of $40 per share and both options expire in one year. The stock price is $38.50 per share and the riskless interest rate for continuous compounding is 2.1%. The put option is priced at $2.05 per share while the call option is priced at $1.15 per share. The stock does not pay dividends.
Is this an arbitrage opportunity? If yes, calculate the arbitrage profit per share and construct a cash flow table that describes the trading strategy you would use to exploit the opportunity.