1. By using binomial pricing model and considering the given scenario, answer the following questions for a European put option. (10 pts)

Scenario: Consider a stock is priced at $45 can go up by 25% or down to 15% per period for one period. The risk free rate is 8%. A European call option expiring in two periods with an exercise price of $50.

1. Calculate Su, Sd (2 pts)
2. Calculate Pu, Pd (2 pts)
3. Calculate the current price of the option (P: theoretical fair value of the put option) (2 pts)
4. Determine the hedge ratio: h (2 pts)
5. Show that return of the hedge portfolio is simply the risk-free (2 pts)