Question: consider an elementary model. Assume that there exist a stock and cash bond in the model. The initial price of bond is 4 0 GBP

consider an elementary model. Assume that there exist a stock and cash bond in the model. The initial price of bond is 40 GBP. The investor beleive that with the probability 2/3, the stock will rise to 60 GBP and with the probability of 1/3, the stock will rise to 80 GBP at the end of time period. The cash bond has an initial price of 1GBP and it will with certainity deliver 7/4 GBP at the end of the period. Does this model admits any arbitrage opportunities? Explain your answer.

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