Question: 1. Consider the one-period binomial pricing model discussed in class. Suppose a stock has current price So = $50, and the value of the stock

1. Consider the one-period binomial pricing model discussed in class. Suppose a stock has current price So = $50, and the value of the stock price in one period is S. Suppose with some probability p, Si, the stock price at time 1, will represent a 10% increase over So, while with probability 1-p, S will represent a 3% decrease over So. Consider a European call option with strike price $50. Finally, suppose the risk-free interest rate of the money market is 6%. (a) (7 points) Consider a replicating portfolio for this call option, that is, a portfolio of N stocks and B dollars invested in the money market, such that the value of the portfolio at the end of the period exactly matches the value of the call option. Find N and B. (b) (3 points) What is the no-arbitrage price of the call option? 2. (10 points) Sunnose a stock is currently priced at $125 per share. It can either you by $25 or

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