We can use put-call parity to solve this problem. The put-call parity relationship for European options on non-dividend-paying stocks is given by:

$V_C(0) - V_P(0) = S(0) - K e^{-rT}$

Where:

• $V_C(0)$ is the price of the call option today.
• $V_P(0)$ is the price of the put option today.
• $S(0)$ is the spot price of the stock (what we are trying to find).
• $K$ is the strike price (which is 70).
• $r$ is the risk-free interest rate (which is 0.04).
• $T$ is the time to maturity (which is 4 years).

We are given that: $V_C(0) = V_P(0) + 0.15$

Substitute this into the put-call parity equation:

$(V_P(0) + 0.15) - V_P(0) = S(0) - 70 e^{-0.04 \times 4}$

Simplifying this:

$0.15 = S(0) - 70 e^{-0.16}$

Now, calculate $e^{-0.16}$:

$e^{-0.16} \approx 0.8521$

Substitute this value into the equation:

$0.15 = S(0) - 70 \times 0.8521$ $0.15 = S(0) - 59.647$ $S(0) = 59.647 + 0.15 = 59.797$

Thus, the spot price $S(0)$ is approximately 59.80.

The correct answer is (b) 59.80.

---

Would you like further details or have any questions? Here are 5 related questions to expand your understanding:

1. How does put-call parity change if the stock pays dividends?
2. What is the significance of the time to maturity (T) in option pricing?
3. How does the risk-free rate (r) affect the prices of European options?
4. Can the put-call parity be used for American options? Why or why not?
5. How would increasing volatility affect the prices of both the call and put options?

Tip: The put-call parity formula is a powerful tool for understanding the relationship between call and put prices, especially for European options.