Assume you are working for an investment bank. You have a client wanting to purchase a European call option on a dividend paying stock. The stock is currently priced at $100 and a dividend of 10% of the stock price is expected in 6 months time. The strike price is $85 and the time to maturity of the option is 1 year. Assume a risk free rate of 10%p.a and that stock prices will move by +/-10% each 6 months. a) Use a two-period binomial model to price the option. b) Now assume that you wish to delta hedge your exposure to the call option. Assuming that the stock price increases in 6 months and in 1 years time, outline the hedging strategy. Show all cashflows from the commencement to the completion of the hedge.