Question: Beverage maker Black & Tan is currently worth 70 per share with one million shares outstanding. Depending on demand, one year from now it will

Beverage maker Black & Tan is currently worth 70 per share with one million shares outstanding. Depending on demand, one year from now it will be worth either 105 or 40 per share. The risk free rate is 1%. (A) Use the portfolio replicating method to calculate the price of a European call option on Black & Tan with a strike price of 60 that expires in one year. (B) Calculate the probabilities which are consistent with investors being risk-neutral (i.e., the risk-neutral probabilities), then show how to derive the price of this option using the risk-neutral valuation method.

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