. Consider a one-period binomial capital market where the risky asset (stock) has an initial price of $100, and it has an annualized standard deviation of 0.6931. The riskless interest rate is 2.5%.

a. Find the arbitrage-free value of the option to buy one share of the risky asset for $75.

b. If the option sells for $48, is there an arbitrage opportunity?

c. If there is an arbitrage opportunity in part (b), demonstrate how to exploit it.