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For questions 5 and 6: A European call option and a put option on a stock both have a strike price of $20 and an

For questions 5 and 6: A European call option and a put option on a stock both have a strike price of $20 and an expiration date in 3 months. Both sell for $3. The risk-free rate is 10% per year, the current stock price is $19, and two dividends of $1 each, are expected in 1 month, and 4 months, respectively. What is its model (synthetic call) price?

a. $3.37

b. $2.26

c. $3

d. $1.48

for questions 5 and 6: A European call option and a put option on a stock both have a strike price of $20 and an expiration date in 3 months. Both sell for $3. The risk-free rate is 10% per year, the current stock price is $19, and two dividends of $1 each, are expected in 1 month, and 4 months, respectively.

What must an arbitrageur do?

a.do nothing

b.buy the actual call, sell the synthetic call

c. sell the actual call, buy the synthetic call

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