Consider a 1-year one period European call option where X = 26. The stock price is currently $24 and at the end of one year it will be either $30 or $18. The risk-free interest rate is 5%.

a. What position in the stock is necessary to hedge a short position in one call option? (5 points)

b. Assume C is equal to $2.86, what is the possible values of the portfolio you created in part (a) above at expiration (hint, find Vu and Vd)? (5 points)