Arbitrage opportunity open to a trader

Reference no: EM131031850

Problem: A European call option and put option on a stock both have a strike price of $50 and an expiration date in two months. Both sell for $5. The risk-free interest rate is 10% per annum, the current stock price is $55, and a $2 dividend is expected in one month.

Required:

1. Identify the arbitrage opportunity open to a trader.

2. What is the present value of the trader's profit?

Reference no: EM131031850

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