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Option. a) The price of a non-dividend-paying stock is $19 and the price of a 3-month European call option on the stock with a strike price of $20 is $1. Draw the payoff graph for the option buyer.
b) The risk-free rate is 4% (compounded quarterly). The 3-month European put option with a strike price of $20 is sold for $3. Given the call option information in a), describe the arbitrage strategy and calculate the profit.
c) A stock price is currently $50. It is known that at the end of 3 months it will be either $53 or $48. The risk-free interest rate is 10% per annum with continuous compounding. What is the value of a 6-month European call option with a strike price of $49?
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