2. A stock has two possible ending prices six months from now: $120 or $90. A call option written on this stock has an exercise price of $110. The option expires in six months. The risk-free rate is 6% per year. The current price of the stock is $100. a. Show how you can create a hedge portfolio using a combination of the stock and call option on this stock. b. What is the equilibrium price of the call option on this stock? 3. A stock has two possible ending prices six months from now: $ 45 or $60. A call option written on this stock has an exercise price of $48. The option expires in six months. The risk-free rate is 4% per year. The current price of the stock is $50. What is the equilibrium price of the call option on this stock? Suppose you find this call option trading at $3.00, describe an arbitrage strategy you can use to take advantage of the mispricing and calculate your arbitrage profit per share used in the strategy. 4. Assume the following information for a stock and a call option written on the stock: Exercise price = $45 Black-Scholes OPM: Current stock price = $30 C=S[N(di)] - Xer [N(D2)] 0= 0.25 di = In(S/X) + (r + 1/202)t Time to expiration, t = 0.25 Risk-free rate, r = 0.05 dz = d.- o t0.5 o to.5 a. Use the Black-Scholes formula to determine the value of the call option. b. What is the value of the corresponding put option on the same stock with the same exercise price and time to maturity? c. Repeat a and b when the time to expiration is 0.5. d. Repeat a and b when the exercise price = $35