Consider a binomial world in which the current stock price of 100 can either go up by 10 percent or down by 8 percent. The risk-free rate is 4 percent. Assume a two-period world. Answer the following question about a call with an exercise price of 100.

1. What will be the price of the stock in time 1 and 2? (5 points)
2. What will be the value of the Call at time period 0, 1 and 2? (15 points)
3. What will be the hedge ratio at time 0 and time 1? (10 points)
4. Illustrate the trading strategy based on hedge ratio at time period 0 and 1? (10 points)