1. ABC Corp. currently has a stock price of $70 per share. The stock price could go up to $77 or go down to $59.5 in six months. Annual risk-free rate is equal to 5%. You want to evaluate a European put option (X=$65) on this stock with the maturity of six months. Using the binomial tree method to price the put option. (5 points)

2. Using the put call parity, find the price of a call option with the same maturity and strike price as the put option in part 1. (2 points) If the put option is quoted as $4 in the market right now, show how you can make risk-less profits through arbitrage (9 points)