The Black-Scholes option pricing model is presented in Exhibit-2. Use it to answer the following questions. Consider the Apple stock call option with 1 year to expiration and a strike price of $130. Apple stock is currently at $127 per share. The risk-free, simple, continuously compounded interest rate (r) is 0.8% per annum. Apple stocks volatility is 25% per year.

A) How many shares of stock would you need to replicate this call option?

B) What position in T-bills would you need to replicate this call option?

C) What is the fair value of this call option?

D) Assuming the call option is trading at its fair value, what is the breakeven expiration stock price? Draw a picture to illustrate the breakeven expiration stock price for the call option.