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A European put option with a strike price of $17 that expires in 4 months is currently worth (costs) $3. The stock price is currently
A European put option with a strike price of $17 that expires in 4 months is currently worth (costs) $3. The stock price is currently $19 and the continuously compounding annual risk-free rate of return is 0.09. Assume that the price of the European call option with the same exercise price and expiry worth is $5. Explain how you could use this as an arbitrage opportunity to make a riskless prot.
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