Problem #1: Consider a European call option on a stock, with a $22 strike and 1-year to [5 marks] expiration. The stock has a continuous dividend yield of 0%, and its current price is $54. Suppose the volatility of the stock is 20%. The continuously compounded risk-free interest rate is 10%. Use a one-period binomial tree to calculate the following: (a) The payoff for up movement. (b) The payoff for down movement. (c) The corresponding replicating portfolio: The number of shares. (d) The corresponding replicating portfolio: The lent/borrowed amount. (e) The option premium. (A) 49.89 (B) 52.89 (C) 51.89 (D) 53.89 (E) 50.89 Problem #1(a): Select 1 Part (a) choices. (A) 24.86 (B) 26.86 (C) 22.86 (D) 25.86 (E) 23.86 Problem #1(b): Select 1 Part (b) choices. (A) 2.00 (B) -2.00 (C) 1.00 (D) -1.00 (E) 0.00 Problem #1(c): Select 1 Part (c) choices. (A) -21.91 (B) -17.91 (C) -19.91 (D) -18.91 (E) -20.91 Problem #1(d): Select 1 Part (d) choices. (A) 35.09 (B) 37.09 (C) 34.09 (D) 38.09 (E) 36.09 Problem #1(e): Select Part (e) choices. Problem #1: Consider a European call option on a stock, with a $22 strike and 1-year to [5 marks] expiration. The stock has a continuous dividend yield of 0%, and its current price is $54. Suppose the volatility of the stock is 20%. The continuously compounded risk-free interest rate is 10%. Use a one-period binomial tree to calculate the following: (a) The payoff for up movement. (b) The payoff for down movement. (c) The corresponding replicating portfolio: The number of shares. (d) The corresponding replicating portfolio: The lent/borrowed amount. (e) The option premium. (A) 49.89 (B) 52.89 (C) 51.89 (D) 53.89 (E) 50.89 Problem #1(a): Select 1 Part (a) choices. (A) 24.86 (B) 26.86 (C) 22.86 (D) 25.86 (E) 23.86 Problem #1(b): Select 1 Part (b) choices. (A) 2.00 (B) -2.00 (C) 1.00 (D) -1.00 (E) 0.00 Problem #1(c): Select 1 Part (c) choices. (A) -21.91 (B) -17.91 (C) -19.91 (D) -18.91 (E) -20.91 Problem #1(d): Select 1 Part (d) choices. (A) 35.09 (B) 37.09 (C) 34.09 (D) 38.09 (E) 36.09 Problem #1(e): Select Part (e) choices