Calculate the present value of the arbitrage profit

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A European call option and put option on a stock both have a strike price of $20 and an expiration date in three months. Both sell for $3. The risk-free interest rate is 10% per annum, the current stock price is $19, and a $1 dividend is expected in one month. Explain how arbitrage can be arranged in this situation and calculate the present value of the arbitrage profit.

Reference no: EM132002061

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