1. Consider a one-period binomial tree model. The initial stock price is S(O)= 32 The price moves up by 1+u= 1.25 or down by 1+d=0,95. Consider also a risk-free bond with initial price A(0) = 10 and the future price is A(1) = 11. (a) (40 pts.) Set up a replicating portfolio to price a call option with strike S(0)*(1.05). (b) (40 pts. Use the method of risk neutral pricing to find the put option price with strike S(0)*(1.06)