In a One-Period Binomial Model, Assume That the Current Stock

Multiple Choice

In a one-period binomial model, assume that the current stock price is $100, and that it will rise to $110 or fall to $90 after one month. If an investment of a dollar at the risk-free rate returns $1.001668 after one month, and the 98-strike put option is trading at $2, how much arbitrage profit can you make in present value terms?

A) $1.93
B) $2.92
C) $3.93
D) $8.00