Arbitrage $3.$

Suppose that

Call premium $=$$$x$

Spot price of asset $=$$$20$

Time to maturity $=1$

$r=10\%$

Strike price $K=$$$18$

The asset pays no dividend.

What value of the call premium X eliminates the arbitrage opportunity? Prove that your answer

is correct by writing down the full arbitrage steps and showing that profit $$ amount is in fact

$$0.$