Suppose the current price of a stock is $18. Consider a two state tree model defined such that after 3 months, the stock price may increase to $19 with a 40% probability or decrease to $16 with a 60% probability. Consider a European call option, based on this stock, with strike price K=$17 and expiry time T=3 months. Assume the risk-free interest rate is 9%. (a) (3 marks) Construct a risk-free portfolio and use it to determine the present no-arbitrage value (fair value) of the option (i.e., at time t=0 ). (b) (3 marks) Suppose such an option is priced on the market at V=2.0 (i.e., higher than the no-arbitrage price). Describe the details for a strategy that will result in a guaranteed profit (in present value, i.e., at t=0 ) and determine the value of that profit (per option), somewhat similar to what we did in class. (As usual in this course, we will assume shortselling is allowed and the no-arbitrage principle holds.)