QUESTION 20 A one-month European call option on a non-dividend-paying stock is currently selling for $4.50. The stock price is $55, the strike price is $50, and the risk-free interest rate is 6% per annum with continuous compounding. What will be the value of the arbitrage portfolio/position when the stock price at maturity is greater than the strike price (Sk)? [ Hint: Is the call below or above its lower or upper price boundary? If so, form the zero dollar portfolio at the beginning, then reverse the transactions of the zero dollar portfolio ] T OA (S+C) e +K>0 OBK-(S+C) e->0 OC. (S-C) e-K>0 OD. (S+C) e - K>0

A(S0+C)eT+K>0 B(s+c)++t>0 (s0+c)rTK>0