1.) Is there an arbitrage? Assume: i) The continuously compounded interest rate for lending...
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Finance
1.) Is there an arbitrage? Assume:
i) The continuously compounded interest rate for lending is 22.31%. and the continuously compounded interest rate for borrowing is 28.74%.
ii) The current stock price is $60. There are no dividends this year.
iii) A European call option with strike K = $80 and expiration T = 1 trades for $8. iv) A European put option with strike K = $80 and expiration T = 1 trades for $13.
v) There are no transaction costs.
vi)How does your answer change if there is a 10% tax on buying options, but no tax on selling options?
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