Please provide letter answer but also explanation

1. In a binomial model, if the call price in the market is higher than the call price given by the model, an arbitrage strategy would include (select the best answer)

a. sell the call and sell short the stock

b. buy the call and sell short the stock

c. buy the stock and sell the call

d. buy the call and buy the stock

2. In a two-period binomial world, a mispriced call will lead to an arbitrage profit if

1. the proper hedge ratio is maintained over the two periods
2. the hedge portfolio is terminated after one period
3. the option goes from over- to underpriced or vice versa
4. the option remains mispriced over both periods

3. The effect of a decrease in volatility on an options price is a

a. decreased option price due to lower expected payout when the option is in the money

b. nominal volatility will not noticeably effect an options price

c. increased price due to decreased possible gains

d. decreased price due to increased possible losses

4. In the single period binomial model, if a call option will expire in-the-money for both the up and down move, the hedge ratio will be

a. 0.5

b. infinite

c. 1.0

d. 0.0