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1. Given: S= $100, u = 1.3, d=0.8, K = $95, r= 8% (continuously compounded), 8 = 0, T = 0.5 year, and n =

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1. Given: S= $100, u = 1.3, d=0.8, K = $95, r= 8% (continuously compounded), 8 = 0, T = 0.5 year, 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? 1. Given: S= $100, u = 1.3, d=0.8, K = $95, r= 8% (continuously compounded), 8 = 0, T = 0.5 year, 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

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