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III. (10 points) Lower Bound of Call Options Suppose the following information is given on a European-style call option on a stock that pays no

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III. (10 points) Lower Bound of Call Options Suppose the following information is given on a European-style call option on a stock that pays no dividend: S0=40;T=1;K=35;r=5%(continuouscompounding) 1. Please calculate the minimum value of the call option. 2. If the call option is selling for \$5.0. Is there an arbitrage opportunity? Please explain. (Answer yes or no, and give a brief explanation. No actual transactions are required.)

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