Consider a stock worth $100 that can increase by 25 percent or decrease by 20 percent per period. The risk-free rate is 10 percent. Use one binomial period. This question has 5 Parts. Answer Parts (a) to (e) in the spaces provided. a. Determine the two possible stock prices for the next period. (2 marks) b. Determine the intrinsic values at the expiration of a European call option with an exercise price of $95. (2 marks) c. Find the value of the option today. (3 marks) d. Construct a hedge by combining a position in stock with a position in the call. Show that the return on the hedge is the risk-free rate regardless of the outcome, assuming that the call sells for the value you obtained in part c. (6 marks) e. Determine the rate of return from a riskless hedge if the call is selling for $20 when the hedge is initiated. (3 Marks) 1 A B I 5 E E ! * a. Determine the two possible stock prices for the next period. (2 marks) c. Find the value of the option today. (3 marks) b. Determine the intrinsic values at the expiration of a European call option with an exercise price of $100. (2 marks) d. Construct a hedge by combining a position in stock with a position in the call. Show that the return on the hedge is the risk-free rate regardless of the outcome, assuming that the call sells for the value you obtained in part c. (6 marks) e. Determine the rate of return from a riskless hedge if the call is selling for $20 when the hedge is initiated