(a) (4 Marks) Use the one period binomial model to value a call with exercise price of 55 on a stock whose current price (So) is $55 which can increase to 72 or drop to 51 by the end of the period. The risk free interest rate is 10%. b. (5 Marks) Prove that your price in (a) is correct by using an arbitrage argument. Detail your transactions and cash-flows today and at the end of the period. (Hint: Calculate the hedge ratio) C. (3 Marks) State the immediate exercise Lower bound for an American call. Show how you can make riskless profits if the current stock price (S.) is $20/sh, the call's exercise price (E) is $15 and the call sells for $3. (Assume 1 call has the right to buy 1 share at E). d. (Bonus 4 Marks) Calculate the price of the corresponding put to the call in (a)