1. In a one-period binomial model, assume that the current stock price is 100, and that it will rise to 110 or fall to 90 after one month. The risk-free rate of return per time step is 1.668%. A 98-strike call option is trading at 2.
   1. How would you set up a replicating portfolio for this model with units of stock, and B units of cash? In other words, write down the equations that replicate the payoffs in the model above.
   2. Solve the replicating equations in (a) to determine the call price, and describe briefly what the sign on and B imply.
   3. What is the risk neutral probability for this model?
   4. What is the price of the call option according to the risk neutral pricing method? What trading decision would you make given that price, and the price at which the option is trading?