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Adjusted intrinsic value of the 2-month call option

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Amazon.com (AMZN) currently trades for $3440 a share. A 2-month at- the-money call option on AMZN trades for $20. All options are European and AMZN pays no dividends. The interest rate is 1% with continuous compounding.

(a) What is the adjusted intrinsic value of the 2-month call option?

(b) What is the no-arbitrage price of a 2-month at-the-money put option on AMZN?

(c) If the put option in (b) is trading for $16, is there an arbitrage op- portunity and if so, what securities would you buy and/or sell to take advantage of it?

Reference no: EM133114495

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