A stock currently trades at $41, but may increase to $52 or fall to $32 over the next six months. The annual risk-free rate is 2%.

a) Using the binomial method, value a call option and a put option, both with X= $43. Then verify that the prices you obtained satisfy put/call parity.

b) Suppose that the actual market price of the call option with X = $43 was $5. Can you could engage in arbitrage to take advantage of this mispricing if there is no put option available to trade? If so, demonstrate how you can make a profit and demonstrate that the profit is risk-free.