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Problem 1 A stock is currently trading at S = $25, during next 6 months stock price will increase to $30 or decrease to $20.

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Problem 1 A stock is currently trading at S = $25, during next 6 months stock price will increase to $30 or decrease to $20. 6-month risk-free rate is re = 3%. a. [4pts] What positions in stock and T-bills will you put to replicate the pay off of a European call option with K = $26 and maturing in 6 months. b. [1pt] What is the value of this European call option

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