A stock and a riskless bond are tradable assets. The stock price is currently $80. Over the next three-month period it is expected to go up by 10% in the up state or down by 10% in the down state. The risk-free interest rate is 10% per annum with continuous compounding.

A) A new asset X has $1 payoff in the up state and $0 payoff in the down state. Use the binomial tree model to determine the price of asset X.

B) A new asset Y has $0 payoff in the up state and $1 payoff in the down state. Explain in detail how to use stock and riskless bond to replicate the payoffs of asset Y.

C) What is the economic interpretation of the sum of prices of assets X and Y?