What is the lower bound for the european call option

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Reference no: EM131962559

Consider a European call option on a stock that matures in nine-months. The stock is currently trading for $102 and the strike price is $95. The risk-free rate of interest is 6% per year.

a) What is the lower bound for the European Call option?

b) Suppose the European call option is trading in the market for $10.50, is there an arbitrage opportunity? If so, what is the strategy and arbitrage profit?

Reference no: EM131962559

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