Question 7 (10 points) The REM stock price today is $40. The stock price will either be $30 or $50 one year from today. The continuously compounded risk-free interest rate is 4% and the stock has a continuous dividend yield of 8%. The at-the-money European call on the REM stock is currently selling for $2.19. Show that an arbitrage opportunity exists using the binomial option pricing model. What transactions would you enter into today to take advantage of the arbitrage opportunity? A/ Question 7 (10 points) The REM stock price today is $40. The stock price will either be $30 or $50 one year from today. The continuously compounded risk-free interest rate is 4% and the stock has a continuous dividend yield of 8%. The at-the-money European call on the REM stock is currently selling for $2.19. Show that an arbitrage opportunity exists using the binomial option pricing model. What transactions would you enter into today to take advantage of the arbitrage opportunity? A/