A friend of yours contacted her bank to borrow $1m. for 9 months. Because of her credit risk, the bank quoted her an interest rate of 8% p.a. continuous compounding (Note: This is her borrowing rate, not her lending rate. Nor is it the risk- free rate or anybody else's rate). You are her financial advisor. You observe the following option and stock prices:

Security Price 9-month European call whose exercise price = $40 $4 9-month European put whose exercise price = $40 $2.81 the underlying (non-dividend-paying) stock $39

What advice will you give to her? Should she go ahead and borrow from the bank? If not, what can she do to effectively borrow $1m.? Please provide the full details of your recommendation. (Assume continuous compounding).