QUESTION 5 This question can be a little tough. In the binomial tree model, if one plus the risk-free rate is higher the up factor, then which of the following statement is NOT correct? One could arbitrage for a riskless profit The risk-neutral probability doesn't make sense any more. To arbitrage for the riskless profit, an investor need to long the stock with borrowed money To arbitrage for the riskless profit, an investor need to short the stock invest the proceeds as the risk-free rate. QUESTION 6 Suppose you are given the following information: stock price = 28, strike price = 25, u = 1.466, d = 0.656, n = 2 (time steps), 2.05% (per period), and pays $2 dividend at the end of the first period. The early exercise premium of the above American put option is closest to. $0.1605 O $0.2605 $0.3605 $0.4805