IBM is trading at $80 per share today.Under a binomial setting, its price can either go up to $100 in good economyor go down to $60 per share in bad economynext year. For simplicity, let's assume the interest rate for T-Billis zero. Consider the IBM 90 call option.

Which portfolio replicates the payoff of the IBM 90 call option whose strike price is $90?

Question 2 options:

Long 0.5 share of IBM andshort $25 T-Bills

Long 0.5 share of IBM and long $25 T-Bills

Long 0.25 share of IBM and short $15 T-Bills

Long 0.25 share of IBM andlong $15 T-Bills

What should be the call premium today?

Question 3 options:

$2

$3

$5

$8

Which of the following willNOTaffect the option premium we calculated in the previous question?

Question 4 options:

Because of the economic crisis, people suddenly become highly risk averse.

Because of the economic crisis, IBM stock pricesuddenly drops to $75 per share.

Because of the economic crisis, IBM is expected to be traded at $50 rather than $60 next year if the economy is bad.

Because of the economic crisis, IBM is expected to be traded with more volitilityat either $120 or $40, rather than $100 and $60 next year.