A stock's current price is \(\$ 160\), and there are two possible prices that may occur next period: \(\$ 150\) or \(\$ 175\). The interest rate on risk-free investments is \(6 \%\) per period.

1. Assume that a (European) call option exists on this stock having on exercise price of \(\$ 155\).

(a) How could you form a portfolio based on the stock and the call so as to achieve a risk-free hedge?

(b) Compute the price of the call.

2. Answer the above two questions if the exercise price was \(\$ 180\).