The Current Price of a Non-Dividend Paying Stock Is $40

question 19

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.

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