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You can trade Xerox stock and two Xerox call options, both with the same expiration date. Below is a table that provides information on these
You can trade Xerox stock and two Xerox call options, both with the same expiration date. Below is a table that provides information on these two calls. The annualized risk-free rate is 1 percent and the current price of Xerox is $40. Does there exist an arbitrage opportunity with these option prices? If yes, what strategy would you employ to exploit this arbitrage opportunity? Call 1 - exercise price of 45 and call price of 2.5 Call 2 - exercise price of 50 with call price of 3.
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