Consider a stock trading at the price of $90 today. Also, assume that the one-year risk-free rate of return is 5%. There are two derivative contracts on the stock: Contract A pays $10 if the stock price is above $100 in one year, and Contract B pays $10 if the stock price is below $100 in one year. Note that both payments of $10 happen in one year (the maturity date). Contract A is currently trading at a price of $4.

Continue the question above. Now there is a Contract E paying $10 if the stock price is above $120 in one year. Which of the following numbers can be a possible no-arbitrage price of Contract E?

Group of answer choices

A. 4.5

B. 6.5

C. 3.5

D. 5.5