Question: A bank tries to construct a protected principal note, where it receives $100 from its clients and guarantees to pay back $100 two years later.

A bank tries to construct a protected principal note, where it receives $100 from its clients and guarantees to pay back $100 two years later. In this strategy, the bank first buys a two-year risk-free bond. Also, it considers buying a two-year European put option on a non-dividend-paying stock that currently sells for $80. The risk-free interest rate is 4%. Which of the following puts is certainly infeasible for the bank under no-arbitrage condition?

A.Put with a strike price of $96

B.Put with a strike price of $94

C.Put with a strike price of $92

D.All of the above puts are feasible.

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