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Suppose you observe the following prices of financial instruments in the market: - The stock price of firm A is $20 per share - A

Suppose you observe the following prices of financial instruments in the market:

- The stock price of firm A is $20 per share

- A European put option on firm A with 1-year maturity and strike price of $18 sells for $3.33

- A European call option on firm A with 1-year maturity and strike price of $18 sells for $7.00 Suppose the continuously compounded risk-free rate is 8%. Is there an arbitrage opportunity? If so, what is the present value of the arbitrage profit? Assume that you can trade one unit of stock, call, and put option.

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