erminal payoffs ong put Short put Profit/los Long Put Short put X c+e"=2+32/√1+0.10=$32.51 You may want to convert the interest rate with annual compound ing into the one with continuous compounding first) p+S=4+29=$33 Therefore,(p+s)-(c+ xe") 33-3251=$049 The arbitrage involves selling the put option and the underlying share short and buying the call options and lend ing 32//1.10(30.51)for six months. The details of transactions and the resulting cash flows are as follo C Gary Xu AcF2 14 Princip les of finance 2© Gary Xu AcF214 Principles of Finance 2 4. Terminal payoffs: Profit/Loss: 5. + = 2 + 32 / 1+ 0.10 = $32.51 −r c Xe (You may want to convert the interest rate with annual compounding into the one with continuous compounding first) p + S = 4 + 29 = $33 Therefore, ( + ) − ( + ) = 33− 32.51 = $0.49 −r p s c Xe The arbitrage involves selling the put option and the underlying share short and buying the call options and lending 32 / 1.10(= 30.51) for six months. The details of transactions and the resulting cash flows are as follows: Long Put X Short Put X Long Put X Short Put X T S T S T S T S