0. Consider the following one-period binomial model for stock price. At t = 0 the stock price is $80 and at t = 1 (t is in years) it could be $70 with probability p > 0 and $y with probability 1 p. The interest rate is assumed to be 8%.

   1. (1) Determine the range of values for y that precludes arbitrage in this model.

   2. (2) Assume that y = $83. Construct an arbitrage strategy for this model.1