Question: QUESTION 2 [1!] + 3 = 13 MARKS] Consider a W option on one share. The current stock price is $25 and expected VGllitj is

QUESTION 2 [1!] + 3 = 13 MARKS] Consider a W option on one share. The current stock price is $25 and expected VGllitj" is 30%p.a. The strike price is $24 and the constant riskfree rate is 5% pa. continuouslyr compounded. The current price of the call is $4.50. a) Using a Mind. binomial model, 1What strategy should be used to lock in an arbitrage profit assuming the stock price decreases in the first period and then increases in the second period? b) Explain what synthetic position was created, its cost and how this relates to the arbitrage strategy

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