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James is an arbitrage hungry investor but he did not study well during his derivatives class and needs your help. He observes the price of
James is an arbitrage hungry investor but he did not study well during his derivatives class and needs your help. He observes the price of a European call is $8 and a European put options on IBM is $13. Both options have a strike price of $30 and expire after 6 months. If the risk-free rate is 3.5% per annum and the stock price of IBM is $45. Investors expect a dividend of $2 after 3 months. Help James identify if there is an arbitrage opportunity and how he can take advantage of it.
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