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Suppose an American put is trading for $ 1 6 . 5 0 and an American call is trading for $ 1 5 , where
Suppose an American put is trading for $ and an American call is trading for
$ where both options have identical terms. The underlying stock price is $
and the exercise price is $ The annual riskfree interest rate is percent, and
the time to expiration for both options is one year. Assuming that the stock pays no
dividends, identify the appropriate arbitrage trading strategy. First identify how the
putcall parity rules for American options has been violated, and then describe the
trading strategy which could be used to take advantage of this violation.
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