Question: Q1. = Let S = $ 100, K = $95, r = 8%, T=0.5, and 8 = 0. Let u= 1.3, d=0.8, and n=1. a.

Q1. = Let S = $ 100, K = $95, r

Q1. = Let S = $ 100, K = $95, r = 8%, T=0.5, and 8 = 0. Let u= 1.3, d=0.8, and n=1. a. Verify that the price of a European call is $16.196. b. Suppose you observe a call price of $17. What is the arbitrage? c. Suppose you observe a call price of $15.50. What is the arbitrage? c

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