Recall that the risk-neutral probability of an asset corresponds to the probability for which the expected return on the asset equals the risk-free rate. Consider a special case where the current asset value is S0 = 100, and the annual risk-free rate is r = 0%. The asset does not pay dividends. Additionally, consider a simple distribution in which the asset price goes up by $10 with probability p and drops by $10 with probability 1 p. Based on this information, what is the risk-neutral probability?

(a) 0.55

(b) 0.50

(c) 0.45

(d) 1.00

Consider the same information from the previous question. The price of a six-months forward contract is $100. What is the potential arbitrage profit? (a) $1.00 (b) $0.00 (c) $0.50 (d) -$0.50