In this question we compare the options on specic stocks and the options on the index. The current IBM share price is $100 and the Intel share price...

Assuming no arbitrage can we say which alternative should cost more? 

In this question we compare the options on specific stocks and the options on theindex. The current IBM share price is $100 and the Intel share price is $5 0. The index is a simple average of the prices of the two stocks, which currently stands at$75. Consider two alternatives. i) Two call options (European) on the index with an exercise price of $75. ii) One call option on IBM with an exercise price of $100, and one call optionon Intel stock with an exercise price of $50. a) Assuming no arbitrage can we say which alternative should cost more?Explain.