Consider a European put option on the stock of XY Z with strike $95 and six months to expiration. The stock does not pay dividends and is currently worth $100. The annual continuously compounded risk-free interest rate is 8%. In six months the price is expected to be either $130 or $80. 

a. Using the single-period binomial option pricing model, find the price of the put option using replicating portfolio. 

b. Suppose you observe a put price of $8. What is the arbitrage? (Describe the strategy and make the cashflow chart). 

c. Suppose you observe a put price of $6. What is the arbitrage? (Describe the strategy and make the cashflow chart).