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Suppose a stock is currently trading for $58.00, and in one period will either go up by 21% or fall by 8%. If the one-period
Suppose a stock is currently trading for $58.00, and in one period will either go up by 21% or fall by 8%.
If the one-period risk-free rate is 2.8%, what is the price of a European put option that expires in one period and has an exercise price of $58.00? Suppose the option actually sold in the market for $8.00. Describe a trading strategy that yields arbitrage profits.
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