Consider a one-period model with 2 states and 2 assets:a bond and a stock.Assume that r= 0 so that the bond sells for $1 at t= 0 and paid $1 at t= 1.The initial stock price is $20 and it has two possible prices $30 and $15 at t= 1.

(1).Is this model arbitrage free?If yes,Find a state price vector and a risk neutral probability measure.Is it complete?

(2). FindthepricesoftheEuropeancallandputoptionsonthestockwithstrikeprice K=$20. Also findthe

replicating trading strategies which replicate the cashflows for the options at t = 1