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For all questions, interest (r) and dividend (d) rates are continuously compounded unless specified otherwise. (4) r= 5% (c.c.), T (option expiry) = 6 months.

For all questions, interest (r) and dividend (d) rates are continuously compounded unless specified otherwise.

(4) r= 5% (c.c.), T (option expiry) = 6 months. Assume we have the following table of call option prices: Strike Price Call Premium Ki = 79 $6.06 K2 = 80 $5.62 K3 = 84 $3.67 a) Find 1 so that K 2 = 1K1 + (1 - 1)K3. b) Is there a possible arbitrage? Justify your answer. c) If there is a possible arbitrage, what is your arbitrage portfolio? (4) r= 5% (c.c.), T (option expiry) = 6 months. Assume we have the following table of call option prices: Strike Price Call Premium Ki = 79 $6.06 K2 = 80 $5.62 K3 = 84 $3.67 a) Find 1 so that K 2 = 1K1 + (1 - 1)K3. b) Is there a possible arbitrage? Justify your answer. c) If there is a possible arbitrage, what is your arbitrage portfolio

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