1. The stock price of Apple is currently $140. The stock price a year from now will be either $170 or $120 with equal probabilities. The interest rate at which investors can borrow is 5% per year. Consider a call option with an exercise price of $150 and an expiration date 1 year from now (a) What are the payoffs of the call option a year from now? (b) What is the hedge ratio for this option? (c) What is the hedged portfolio and what are the payoffs of the hedged portfolio? (d) Find the premium of the call option (e) If someone is willing to accept the premium of $20 for the same call option, how can you take advantage of this mispricing? 1. The stock price of Apple is currently $140. The stock price a year from now will be either $170 or $120 with equal probabilities. The interest rate at which investors can borrow is 5% per year. Consider a call option with an exercise price of $150 and an expiration date 1 year from now (a) What are the payoffs of the call option a year from now? (b) What is the hedge ratio for this option? (c) What is the hedged portfolio and what are the payoffs of the hedged portfolio? (d) Find the premium of the call option (e) If someone is willing to accept the premium of $20 for the same call option, how can you take advantage of this mispricing