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A two-month European put option on a non-dividend-paying stock has a strike price of $65....

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Finance

  1. A two-month European put option on a non-dividend-paying stock has a strike price of $65. The risk-free interest rate is 5% per annum and the stock price is $58.

    1. a) What is the lower bound for this put option?

    2. b) If the market price of this put option is $3, is there an arbitrage opportunity?

    3. c) If so, define the arbitrage strategy.

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