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(a) An American call option with strike 25 trades at 4. The stock pays no dividends. The stock price is 30 dollars. What would an
(a) An American call option with strike 25 trades at 4. The stock pays no dividends. The stock price is 30 dollars. What would an arbitrager do if such prices existed?
(b) An American put option with strike 35 trades at 4. The stock price is 30 dollars and pays no dividends prior to expiry. What would an arbitrager do if such prices existed.
(c) Do you think such prices could occur in the real world?Explain
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