So = E(S1) 1+Prs + premium E[S] 1+ cost of capital So = = E[S] 1+Prf quSu + ga Sd 1+ros where qu(qd) is the risk-neutral probability of up (down) = call payoff = (ST - K)+ A determined by making : (Call - A shares) = risk-free Suppose that the stock price follows the process: - 130, actual probability = 70% So = 100 -80, actual probability = 30% and the risk free rate is 10% over the period. Consider a call struck at K = 100. (a) (5 points) Find the payoffs at T = 1 in the up state (Cu) and down state (Ca) for the call struck at K = $100. co la Cu Cd So = E(S1) 1+Prs + premium E[S] 1+ cost of capital So = = E[S] 1+Prf quSu + ga Sd 1+ros where qu(qd) is the risk-neutral probability of up (down) = call payoff = (ST - K)+ A determined by making : (Call - A shares) = risk-free Suppose that the stock price follows the process: - 130, actual probability = 70% So = 100 -80, actual probability = 30% and the risk free rate is 10% over the period. Consider a call struck at K = 100. (a) (5 points) Find the payoffs at T = 1 in the up state (Cu) and down state (Ca) for the call struck at K = $100. co la Cu Cd