Luther Co. is trading at $35 per share. In one year, it will be worth either $47 or $30 with equal probability, with a risk-free rate of 6%.

1. What is the expected return of the option? (in percent)

2. What is the expected return on Luther Co? (in percent)

3. What is the price of a K=40 call option on Luther Co. that expires in exactly one year? (in dollars)