Hello,

I would be extremely grateful if someone could help me solve the problem given on the picture below as I myself tried many times but cannot get the correct answers.

The current price of KD Industries stock is $22. In the next year the stock price will either go up by 25% or go down by 25%. KD pays no dividends. The one year risk-free rate is 5.5% and will remain constant. Based on Bionomial Pricing Model: a. For one-year European call option with exercise price $20: The replicating portfolio is (Either short or long) (Round your answer to two decimals) shares of the stock and (Either short or long) $ (Round your answer to two decimals) in risk-free bond. The price is $ (Round your answer to two decimals). b. For one-year European put option with exercise price $20: The replicating portfolio is (Either short or long) (Round your answer to two decimals) shares of the stock and (Either short or long) $ (Round your answer to two decimals) in risk-free bond. The price is $ (Round your answer to two decimals)