What is the no-arbitrage prices of b


Today Security A sells for $50.00 and B sells for $52.00. One year from today for an hour a conversion window will open and A and B may be exchange one for one without cost. Neither will pay its owner any dividend or interest before then.

(a) What is the no-arbitrage prices of B today?

(b) Show how to make an arbitrage profit if B sells for $52.00.

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