Explain the arbitrage opportunities available

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A nine-month European put option on a dividend-paying stock is currently selling for $2. The stock price is $25, the strike price is $27, and the risk-free interest rate is 7% per annum. The stock is expected to pay a dividend of $1 one month later and another dividend of $1 seven months later. Explain the arbitrage opportunities available to the arbitrageur by demonstrating what would happen under different scenarios.

Reference no: EM132535230

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