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Suppose a stock can be purchased for $8, a put option on the stock can be purchased for $1.50, and a call option on the
Suppose a stock can be purchased for $8, a put option on the stock can be purchased for $1.50,
and a call option on the stock can be written (i.e., sold) for $1.00. If holding these positions in
combination can guarantee a payoff of $10 at the end of the year, then what must be the risk-free
rate if no arbitrage opportunities exist?
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