Binomial Option Method The current price of a stock is below. In 1 year, the price will be pu If the price increases and Pd if the price decreases The annual risk-free rate is below. Using the binomial method, find the price of a call option on the stock that has the strike price listed below and expires in one year. Please show work and answer questions completely to receive full credit. Current Stock Price, P PU Pd risk-free rate Strike price time to expiration $ 45,00 $ 49.00 $ 41.00 8% $ 44.00 1 year a. Calculate the "up factor" or "u", which is the factor when multiplied by the current price results in Pu. (2 pts) b. Calculate the "down factor" or "d", which is the factor when multiplied by the current price resilts in Pd. (2 pts) c. Calculate the value of the call option if the price increases in year 1, or Cu It equals Maxlo, Pu - X] (2 pts) Cu d. Calculate the value of the call option if the price decreases in year 1, or Cd. It equals Mox(0, Pd - X1 (2 pts) cd e. Calculate the optimal number of shares, Ns, in our future hedge portfolio. Use the equation (Cu-Cd)/(Pu-d)) (2 pts) Ns If the market increases at a facto fu, calculate the Portfolio payoff, Pu(Ns) and subtract Cu to obtain the net portfolio payoff (3 pts) Pu[Ns) net Cu net portfolio payoff 8. If the market decreases at a factor of d, calculate the Portfolio payoft, Pd(s) and subtract Cd to obtain the net portfolio payoft (3 pts) PdfNs) net Cd net portfolio payoff + h. Both net portfolio payoffs should be the same. Now find the present value (PV) of the net portfolio payoff with dully compounding, Use 365 days in a year (5 points) N WY PMT PV PV $0.00 Using the present value of the portfolio you have just calculated, now solve for the value of the call, Ve (Make sure you use the positive value of the Pv.) (4 points) Use the equation Protes(P) - VC ve