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2. Arbitrage on Call Option (15 points) The price of a non-dividend-paying stock is $100 and the continuously compounded risk-free rate is 5%. A I-year

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2. Arbitrage on Call Option (15 points) The price of a non-dividend-paying stock is $100 and the continuously compounded risk-free rate is 5%. A I-year European call option with a strike price of $100*20.05 = $105.127 has a premium of $11.924. A 1.5 year European call option with a strike price of $100*20.05x1.5 $107.788 has a premium of $11.50. Demonstrate an arbitrage. =

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