GameStop is currently trading at $18. Over the next year, it will either increase in value to $26 or decrease to $11. The risk-free rate is 1% per year. A call and put option on this stock with an exercise price of $22 mature in one year. For the pricing, use the binomial model with annual periods.

(a) What are u and d?

(b) What are the payoffs from the call and put in each state of the world?

(c) What position in the underlying stock and bond would allow you to replicate the payo from the call and put? What is the value of the replicating portfolio for the call and put? What are the call and put price at time 0?