Exercise 5 (1 mark for each part). Let St be the current price of a stock that pays no income. Let rBID be the interest rate at which one can lend/invest money, and roFf be the interest rate at which one can borrow money. Both rates are continuously compounded. Assume rB1D YOFF, except in (a). (a) Assume rBID > roFF. Find an arbitrage portfolio. Verify it is an arbitrage portfolio. (b) Use a no-arbitrage argument to prove the forward price with maturity T for the stock satisfies the upper bound OFF(T-t (c) Use a no-arbitrage argument to prove a similar lower bound for the forward price. (d) Assume the stock has bid price St,BID and offer (or ask) price St,OFF. The bid price is the price for which you can sell the stock. The offer price is the price for which you can buy the stock. How do the upper and lower bounds in (b) and (c) change? Prove these bounds using no-arbitrage