Question: You are given a binomial model with n=1, S(0)=52, K=$51, r=3%, T=0.5, =2%, u=1.1, and d=0.9. a.) What are the premium, and and B for

You are given a binomial model with n=1, S(0)=52, K=$51, r=3%, T=0.5, =2%, u=1.1, and d=0.9.

a.) What are the premium, and and B for a European call?

b.) What are the premium, and and B for a European call?

c.) Suppose you observe that the European put sells for $2.2 in the market.

i. Give a portfolio that can be used to take advantage of arbitrage.

ii. Show that the portfolio that you give in (i) is an arbitrage portfolio.

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