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Opportunity for arbitrage profits

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Reference no: EM131411562

Suppose the price of a 6-month European call with exercise price $50 on a non-dividend paying stock is priced at $3. Let the risk-free rate be 12% per year (you may assume rate compounded continuously). If the stock is currently valued at $51, show that there exists an opportunity for arbitrage profits.

Reference no: EM131411562

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