Question: Please solve for A and B. Please show your work. Please explain your reasoning. The price of a non-dividend paying stock is $30. The strike

Please solve for A and B.

Please show your work.

Please explain your reasoning.

The price of a non-dividend paying stock is $30. The strike price of a 6-month European call option on the stock is $25. The risk-free rate is 4% (continuously compounded). a) Calculate the lower bound for the call option. b) Now assume that the actual call price is LESS than the price you calculated in part a). Describe the arbitrage strategy (.e. the various long and short positions you will take) to exploit this pricing discrepancy. Answer qualitatively

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