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A ten-month European put option on a dividend-paying stock is currently selling for $4. The stock...

A ten-month European put option on a dividend-paying stock is currently selling for $4. The stock price is $40, the strike price is $43, and the risk-free interest rate is 6% per annum. The stock is expected to pay a dividend of $2 two months later and another dividend of $2 eight months later. Explain the arbitrage opportunities available to the arbitrageur by demonstrating what would happen under different scenarios.

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jeff jeffy answered 1 year ago
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