A ten-month European put option on a dividend-paying stock is currently selling for $3. The...
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A ten-month European put option on a dividend-paying stock is currently selling for $3. The stock price is $42, the strike price is $45, and the risk-free interest rate is 6% per annum. The stock is expected to pay a dividend of $2 one month later and another dividend of $2 seven months later. Explain the arbitrage opportunities available to the arbitrageur by clearly demonstrating what would happen under different scenarios.
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