A European call option on a non-dividend-payment stock with a strike price of $18 and an expiration date in one year costs $3. The stock price is $20 and the risk free rate is 10% per annum.Can u design an arbitrage scheme to expolit this situation?
We can design an arbitrage scheme by short-selling the stock as shown in the following screenshot (2 variations of the same strategy are described):
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