For the next three questions, use the following information:
Suppose the S&R index is 800, the continuously compounded risk-free rate is 5%, and the dividend yield is 0%. A 1-year 815-strike European call costs $75 and a 1-year 815-strike European put costs $45. Consider the strategy of buying the stock, selling the 815-strike call, and buying the 815-strike put.
What is the arbitrage implied by your answer to (a)?
We should Question Blank 1 of 3 a large amount of money, Question Blank 2 of 3 the aggregate position from (a) because the position from (a) pays a sure return that is Question Blank 3 of 3 than the risk-free rate