Exercise 5 (1 mark for each part). Let St be the current price of a stock that pays no income. Let TBID be the interest rate at which one can lend/invest money, and roFF be the interest rate at which one can borrow money. Both rates are continuously compounded. Assume TBID S TOFF, except in (a). (a) Assume TBID > TOFF. Find an arbitrage portfolio. Verify it is an arbitrage portfolio. owuity T or the wick F(t,T) Se OFF(T-) satisfies the upper bound (c) Use a no-arbitrage argument to prove a similar lower bound for the forward price. (d) Assume the stock has bid price St,BIo and offer (or ask) price St,OFF. The bid price is the price for which you can sell the stock. The offer price is the price for which you can buy the stock. How do the upper and lower bounds in (b) and (c) change? Prove these bounds using no-arbitrage