The price of a stock is $120, and at expiration, in one year, the stock price will either

be $144 or $100. The one-year future value factor is 1.10. A derivative pays

(ST)^(1/2) at expiration, T=1 (that is, the payoff is equal to the square root of the stock price at

expiration).

a. Find the price of the derivative

b. Find the replicating portfolio. That is, find the change in (number of shares) and the amount of

borrowing or lending needed to create the same payout as the option.