Question: Let S 0 = 20, = 0.3, r = 0.06 and t = 1 week. Construct a 2-week binomial tree (2 steps), use the

Let S₀ = 20, σ = 0.3, r = 0.06 and Δt = 1 week. Construct a 2-week binomial tree (2 steps), use the p = 1/2 method, and calculate the no-arbitrage call price C for K = 21. If the market price C_M were 3/2 times C, explain in detail how that could be exploited to make a risk-free profit.

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