The price of a European call that expires in six months and has a strike price of $50 is $5. The underlying stock price is $52, and a dividend of $1.00 is expected in three months. The term structure is flat, with all risk-free interest rates being 10%.
a. What is the price of a European put option on the same stock that expires in six months and has a strike price of $50?
b. Explain in detail the arbitrage opportunities if the European put price is $0.50. How much will be the arbitrage profit?
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