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European Call Option. Consider a European call option on a non-dividend paying stock with a strike of $50 and an expiration date in two years.

European Call Option.

Consider a European call option on a non-dividend paying stock with a strike of $50 and an expiration date in two years. The stock price is $52 and the risk free rate is 5% p.a. The call is priced at $5.

Is there an arbitrage strategy? If so, outline the strategy.

Show your calculations and reasonings.

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