The price of a stock, which pays no dividends, is $40 and the strike price of a one-year European call option on the sto

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answerhappygod
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The price of a stock, which pays no dividends, is $40 and the strike price of a one-year European call option on the sto

Post by answerhappygod »

The price of a stock, which pays no dividends, is $40 and the
strike price of a one-year European call option on the stock is
$35. The risk-free rate is 3% (continuously compounded).
Which of the following is a lower bound for the option such that
there are arbitrage opportunities if the price is below the lower
bound and no arbitrage opportunities if it is above the lower
bound?
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