1. Five years after Anne deposited $3600 in a savings account that earned interest at 4.8% compounded monthly, the rate of interest was changed to 6% compounded semi-annually. How much was in the account 12 years after the deposit was made?
2. You have a stock in the one-period binomial model such that S0= 4, S1(H) = 8, S1(T) = 2,and r= 1.5.
(a) Show that this setup violates the no-arbitrage assumption.
(b) Show how to extract arbitrage by explicitly defining a portfolio(X,?) such that X0<0 while X1≥0.