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Consider a one-period binomial tree when the underlying stock pays the continuous dividend with yield . The interest rate is r. a. Suppose u <
Consider a one-period binomial tree when the underlying stock pays the continuous dividend with yield . The interest rate is r. a. Suppose u < e(r)h. Show that there is an arbitrage opportunity. b. Suppose d > e(r)h. Show that there is an arbitrage opportunity.
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