Question 1. The Binomial Option Pricing = The spot price of SPY is currently $200 (i.e. So = $200). The volatility of SPY is 40% (i.e. = 0.40). We are interested in valuing SPY option at the end of 3 months (i.e. At or T: 3/12 = 0.25). The risk-free rate with continuous compounding is 4% per annum (i.e. r = 0.04). Question 1 - Part (A) [Arbitrage Portfolio Approach] Apply the Arbitrage Portfolio approach with one-step binomial tree and calculate the value of a European CALL option on SPY with an exercise/strike price of $185 (i.e. K = $185) and T = 0.25. Your answers should show all of the complete steps, formula, and calculations below: Binomial tree of the stock price with calculation of u and d (hint: u = eoT and d=1/u) . Binomial tree of the option price. Binomial tree of the arbitrage portfolio, with discussion of how the arbitrage portfolio is constructed, calculation of "Delta (A)", and calculation of the Present Value of Arbitrage Portfolio. Final result of the No-Arbitrage Option Price (based on the Arbitrage Portfolio Approach).