The lower bound and no arbitrage opportunities

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Reference no: EM131998608

The price of a stock, which pays no dividends, is $50 and the strike price of a one year European call option on the stock is $35. The risk-free rate is 5% (continuously compounded).

Find the lower bound for the option such that there are arbitrage opportunities if the price is below the lower bound and no arbitrage opportunities if it is above the lower bound?

Reference no: EM131998608

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