Let binomial model with T = 1, S(sub 0) = $50, d = 0.5, u = 2 and r = 0.25
i) Determine the arbitrage free price for the European call option for one share of stock with strike price K = $50
ii) Determine the hedging strategy which replicates value of option in part (a)
iii) Assume option in (a) is $2 below arbitrage free price. Explain the strategy in stock, bond and option that is arbitrage.