Multiple Choice
The current price of a non-dividend paying stock is $40. A European call option with three months maturity and strike $39 is priced at $2. The risk free rate of interest for three months is 2%. Which of the following statements is correct?
A) The price of the call obeys no-arbitrage restrictions.
B) It is possible to construct a risk-less arbitrage strategy to yield a gain of at least $0.81.
C) It is possible to onstruct a risk-less arbitrage strategy to yield a gain of at least $1.00.
D) It is possible to construct a risk-less arbitrage strategy to yield a gain of at least $1.19.
Correct Answer:
Verified
Correct Answer:
Verified
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