Consider a four-month European put option on a non-dividend-paying stock when price is $55, the strike price is $60, and the risk-free interest rate is 12% per annume?
a) What is the lower bound for the price of this European put option
b) you check the market and see that the put option is trading at $1.5. IS there an arbitrage opportunity?
If yes, state the action you need to take today to exploit this arbitrage opportunity.