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A 1-month european call option on a non-dividend-paying

A 1-month European call option on a non-dividend-paying stock is currently selling for $2.50. The stock price is $50, the strike price is $47, and the risk-free rate is 6%. What strategy results in an arbitrage profit?

1. Buy call option, short stock, lend $45.50 for 1 month.
2. Buy call option, buy stock, borrow $49.50 for 1 month.
3. Short call option, short stock, lend $49.50 for 1 month.

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Solution Preview :

Prepared by a verified Expert

Finance Basics: A 1-month european call option on a non-dividend-paying

Reference No:- TGS0643030

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Finance Basics: A 1-month european call option on a non-dividend-paying

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