Question: Q1. Let S = $ 100, K = $90, r = 8%, T = 0.5, and = 0. Let u = 1.3, d = 0.8,

Q1. Let S = $ 100, K = $90, r = 8%, T = 0.5, and = 0. Let u = 1.3, d = 0.8, and n = 1.

What is the price of a European call ?

Suppose you observe a call price of $19. What is the arbitrage?

Suppose you observe a call price of $15.50. What is the arbitrage?

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