Question: Consider a stock that is certain to have a value of either $130 or $90 in one year, and each is equally likely to occur.

Consider a stock that is certain to have a value of either $130 or $90 in one year, and each is equally likely to occur. Suppose also that the one-year risk-free rate is 2%. Suppose the cost of capital for the stock is 10%. Compute the price of the stock S0. (3 points) Compute the risk-neutral probability of an up movement to have S1=$130. (3 points) Compute the price of a call option with strike price of $100. (3 points) Compute the Delta of the call option. (1 points)

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