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Explain whether the trader can engage in arbitrage

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Reference no: EM132794935

The current price of a stock is $60. The one-year European call option on the stock at a strike price of $50 is currently trading at $10. Assume the one-year interest rate is 10% (based on continuous compounding).

Problem a. Explain whether the trader can engage in arbitrage?

Problem b. If so, what positions would the trader take and what profit might it make at expiration?

Reference no: EM132794935

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