Consider a stock with a current price of $100 that will be worth either $125 or $80 in 1 year. Assume rf=2% (annual compounding). You have invented a new derivative security called a "square", whose payoff in 1 year is the square of the stock price, i.e., payoff = P. a. What are the payoffs to this security in the two states of the world at time 1? (1 point each) b. What portfolio of stock (number of shares) and borrowing (dollar value of initial position, with positive numbers indicating borrowing) will replicate these payoffs? (2 points each) c. What is the current value of this security, i.e., the value of this replicating portfolio? (2 points) Consider a stock with a current price of $100 that will be worth either $125 or $80 in 1 year. Assume rf=2% (annual compounding). You have invented a new derivative security called a "square", whose payoff in 1 year is the square of the stock price, i.e., payoff = P. a. What are the payoffs to this security in the two states of the world at time 1? (1 point each) b. What portfolio of stock (number of shares) and borrowing (dollar value of initial position, with positive numbers indicating borrowing) will replicate these payoffs? (2 points each) c. What is the current value of this security, i.e., the value of this replicating portfolio? (2 points)