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b. You are given that the market European put option for n years is Po, market European call option for n years is Co. Both

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b. You are given that the market European put option for n years is Po, market European call option for n years is Co. Both European options are having the same strike price K. The annual effective interest rate is r continuously compounded, and the continuous dividend yield is 8. Suppose that the arbitrage-free put value is Po + Co. Determine the arbitrage profit today by demonstrating the arbitrage. (10 marks)

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