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Suppose that the price of stock A follows a two-period Binomial Lattice model with the following parameters: Current stock price: S = 120. Up-factor: u=

Suppose that the price of stock A follows a two-period Binomial Lattice model with the following parameters:

Current stock price: S = 120. Up-factor: u= 1.5 Down-factor: d= 0.5 For computational simplicity, R= 1.

If a European call option with strike price $80 is priced at $50. Show explicitly how you can make an arbitrage profit.

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