1.2. You have a stock in the one-period binomial model such that So and r= 4, S1(H) = 8, S, (T) = 2, 1.5. (a) Show that this setup violates the no-arbitrage assumption. (b) Show that there is a portfolio in the one-period model such that Xo X1 > 0. Such a portfolio is an example of arbitrage extraction. 0, Ao #0, and %3D 1.3. With the same stock as in problem 1.2 but with r = 0.25, suppose that you have found a derivative security that has value V(H) portfolio such that X1 = V This portfolio is an example of a replicating portfolio for the 2 and Vi(T) = 0. Calculate Xo and Ao for a %3D %3D security