Suppose that TSLA currently is trading at S0 = $300 per share and next year will either rise to $400 or fall to $200. Say that the risk free rate is 2% (EAR) over the next year. (5 points) Verify that the risk-neutral probability of up is 53%.

Consider a call on Tesla struck at K=300 expiring in 1 year. Find the price of the call using any method you like

Suppose that you are considering developing an electric car charging technology. You must invest $20M today to begin development. Your analysis indicates that at t=1, you will have an exit option to sell the technology to Tesla for $100M if Teslas stock price goes up. If Teslas stock price goes down, the project will not be worth continuing and there will be no liquidation value. Should you make the initial investment? Why?

Consider again part (c). Suppose that you are very bearish on TSLA and feel its future performance will be poor and the price is very likely to fall. Does this affect your decision in (c)? Why or why not?