Question: 1 . ( 1 5 points ) Suppose a stock currently trades at a price of $ 1 5 0 . The stock price can

1.(15 points) Suppose a stock currently trades at a price of $150. The stock price can go up 33% or down 15%. The risk-free rate is 4.5%. a. Use a one-period binomial model to calculate the price of a put option with exercise price of $150. b. Suppose the put price is currently $14. Show how to execute an arbitrage transaction that replicates a loan that will earn/cost less than the risk-free rate. Use 10,000 put options.

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