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Price of a european call option

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Reference no: EM132753406

Suppose the current price of a stock with continuous dividend yield 2% per annum is $10 per share. Suppose also the continuously compounded risk-free interest rate is 5% per annum. Determine whether there is an arbitrage opportunity for each of the following situation. Explain why.

1. The price of a European call option with strike price $1 and maturity 1 year is $9.90.

2. The price of a European put option with strike price $12 and maturity 1 year is $1.65.

Reference no: EM132753406

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