1. (a) Suppose that a European call option with strike price of $110 expires in 1 year. If the risk-free interest rate is 3% per annum, the current stock price is $100, use a 3-period binomial tree to estimate the present value of the option. Assume u = 1.1 and d= 0.9. (b) In the first period, how many shares do you need to hold to A-hedge your position? If the stock goes up in the first period, how many shares do we need to hold in the second period