I am incredibly stuck on the following question... Any help would be greatly appreciated.
According to your binomial model, the price of YMH in 3 months will be either USD 55 or USD 45, with probabilities 0.6 and 0.4, respectively. Two European options, a call and a put, on YMH with maturity 3 months and exercise price $50 are available. The price of the call option is USD 2.72 while the price of the put option is USD 2.23. If you can borrow up to USD 10,000 for 3 months at 0.5%, the arbitrage profit you can generate now is
(A) USD 40.65. (B) USD 42.90. (C) USD 47.35. (D) USD 50.50.