1 1. Suppose a stock is trading at $100 per share.

There are both European

put and call options written on this stock. Both options expire in five
months and have a strike price of $90. If the price of the call option is
$15, what is the price of the put option? The risk-free rate is 4% per
year, compounded monthly.
S0 = $100 r = 0.0033 / month
T = 5 months K = $90 C0 = 15

By the formula we have

C0 - P0 = S0 - K/(1+r)^t
15 - P0 = 100 - 90/(1+0.0033)^5
P0 = 3.53 88.53 103.53
Put Price = 3.53

2 2. Suppose that the put option in the previous problem is trading at $5

per contract. As you can verify, this means that there is an arbitrage
opportunity. Describe carefully the trades you need to make to take
advantage of this opportunity—that is, what to buy, sell, or write and
how much to borrow or lend.

Since Put is 48 cents more expensive. We have to write puts, buy calls,
and lend money in a risk-free rate of 4% per annum.