4. Exercise Consider a l-step binomial model, where there are two possible time evolution H, T and a stock with current price So = 100 and time-l price S (H) = 120, S (T) = 90. Assume one-time interest rate r = 3% during (0,1). Consider a European call option on this stock with strike price K = 110. (i) Consider the following portfolio [4, shares of the stock] + [Short one call option with strike 110 and maturity 1]. (2) Compute the value of Ao such that the above portfolio is perfectly hedged. From this, find the current value c = C110(0,1) of the European call option. (ii) Consider the following portfolio [40 shares of the stock] + [x cash). (3) Compute the value of A, and x such that the above portfolio replicates one long call option. From this, find the current value c = C110(0,1) of the European call option. 4. Exercise Consider a l-step binomial model, where there are two possible time evolution H, T and a stock with current price So = 100 and time-l price S (H) = 120, S (T) = 90. Assume one-time interest rate r = 3% during (0,1). Consider a European call option on this stock with strike price K = 110. (i) Consider the following portfolio [4, shares of the stock] + [Short one call option with strike 110 and maturity 1]. (2) Compute the value of Ao such that the above portfolio is perfectly hedged. From this, find the current value c = C110(0,1) of the European call option. (ii) Consider the following portfolio [40 shares of the stock] + [x cash). (3) Compute the value of A, and x such that the above portfolio replicates one long call option. From this, find the current value c = C110(0,1) of the European call option