1. Consider a single-period binomial model with r = 1/3, B. = 1, So = 2, d = 5/4, u = 3/2, and p = 1/2. (You can take the sample space 2 to be {wi, w2}, with wi corresponding to the stock price going up, and w corresponding to the stock price going "down".) (a) Compute B1. (b) Compute Si(wi) and Siwa), and the probability of each outcome. (c) For the trading strategy y = (2,4), compute Vo(), Vi(V)(wi), and Vi(u)(w). (d) Let X be a European call option with strike price $2.50 and expiration time T = 1. (i) Find X(wi) and X(wy). (ii) Find the replicating strategy = (Q1, B1) for X (iii) Find the manufacturing cost for that strategy. That is, compute Vo). (e) Give an example of arbitrage opportunity if the claim X can be purchased for Co = 1/16 (dollars) at time 0