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Describe the arbitrage opportunity that demonstrate effect

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Reference no: EM133004542

Problem 1: A four-month European call option on a dividend-paying stock is currently selling for $5. The stock price is $64, the strike price is $60, and a dividend of $0.80 is expected in one month. The risk-free interest rate is 12% per annum for all maturities. Describe the arbitrage opportunity that is available and demonstrate the effects of the strategy at the expiration.

Reference no: EM133004542

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