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2. Suppose that a stock price is 25 currently, but within a period it will be worth 10% more or 10% less. The risk-free interest

2. Suppose that a stock price is 25 currently, but within a period it will be worth 10% more or 10% less. The risk-free interest rate is 5%.

a) What is the value of a call option with an exercise price of 25 and maturity in one year?

b) Explain what you understand by "arbitrage opportunity"

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