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A stock that has a current price of $60. A six month European call option on this stock with an exercise price for $40 is

A stock that has a current price of $60.

A six month European call option on this stock with an exercise price for $40 is selling for $25.

A six month European put option on this stock with an exercise price for $40 is selling for $4.

The continuously compounded annual risk-free rate is 5%.

Explain clearly all the transactions required to conduct an arbitrage and calculate your arbitrage profit at the start. Ignore transaction costs.

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