Find an arbitrage opportunity

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Reference no: EM131835253

Consider a simple financial market in which the price of the bond is given by A(0)=10 and A(T)=12. The price of the stock follows a one-step binomial model with S(0)=10 and

S(T)=10, with probability p or S(T)=12 with probability 1-p.

Here, 0<p<1. Find an arbitrage opportunity.

Reference no: EM131835253

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