A stock price is $100 and can go up or down $10 in one month. The risk-free interest rate is 5% and no dividends are scheduled.

a)Using the binomial model calculate the value of a 1-month at-the-money European call.

b)Calculate the implicit probability p of the stock price going up to $110 in one month. HINT: Express the discounted expected call payoff as a function of p, match your answer in (a) and solve for p. c) What is your annualized expected return and risk if you invest in the stock? Is your answer consistent with portfolio theory?