Question: A stock that does not pay any dividend is currently trading at $40. After one period, the price will either increase by 25% or decrease

A stock that does not pay any dividend is currently trading at $40. After one period, the price will either increase by 25% or decrease by 25%. The risk-free rate is 3% per period (not continuously compounded). Consider a European call option on the stock with strike price of $42. Set up a riskless portfolio and price the option.

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