A six-month European call option's underlyingstock price is $86, while the strike price is $80 and a dividend of $5 is expected in two months. Assume that the risk-free interest rate is 5% per annum with continuous compounding for all maturities.

1)What should be the lowest bound price for asix-month European call option on a dividend-paying stockfor no arbitrage?

2) If the call option is currently selling for $2, what arbitrage strategy should be implemented?

1)theoretical price=$2.85

1)theoretical price=$3.02

1)theoretical price=$3.67

1)theoretical price=1.98

2)arbitrage strategy:Buy the call and short the stock.

2)arbitrage strategy:Buy the call and buy the stock.

2)arbitrage strategy:Short the call and buy the stock

2)arbitrage strategy:Short the call and sell the stock