Suppose that the premium on a european put option p 5 the, Financial Management

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Suppose that the premium on a european put option p 5 the

Suppose that the premium on a European put option, p = $5. The time to maturity, T = 1 year. The strike price is $22. The stock price of the underlying common stock is $14 today. The risk-free interest rate is 10% per annum. The stock does not pay dividends.

1- Observe that there is an arbitrage opportunity.

2- What the trader would do to make a profit?

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Financial Management: Suppose that the premium on a european put option p 5 the

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