1. A 1-year European call with strike price 40 has premium 4.00. The underlying stock pays dividends at a continuous rate at 1%. The continuous compounded risk-free rate is 5%. The option is modeled with the following 1-period binomial tree:

S=40, Su=50, Sd= 30

Determine the amount to borrow or lend in order to immediately gain 10.00

through a combination of transactions that cannot lead to a future loss.