Let = $100, = $95, = 8%, = 0.5, and = 0. Let = 1.3, = 0.8, and = 1. a. Verify that the price of a European put is $7.471. b. Suppose you observe a put price of $8. What is the arbitrage? c....

Let

= $100,

= $95,
= 8%,

= 0.5, and

= 0. Let

= 1.3,

= 0.8, and

= 1.

a. Verify that the price of a European put is $7.471.

b. Suppose you observe a put price of $8. What is the arbitrage?

c. Suppose you observe a put price of $6. What is the arbitrage?