Intel stock has a volatility of
 .25 and a price of

$60 a share. AEuropean call option on Intel stock with a strike price of $65 and an expiration time of one year has a price of $10. Using the Black-Scholes Model, describe how you would construct an arbitrage portfolio, assuming that the present value of the strike price is $56. Would the arbitrage portfolio increase or decrease its position in Intel stock if shortly thereafter the stock price of Intel rose to $62 a share?

AppendixLO1