The value of an option can be calculated by using a step-by-step approach in the case of single periods or by using sophisticated formulas that can be easily created through a spreadsheet. In the real world, two possible outcomes for a stock price in six months is an assumption. The stock markets are volatile, and stocks move up and down based on market and firm specific factors.

Shares of NorCell, Inc., a manufacturer of cell phones, cell for $30.00. (Assume that you get the option for free!). Existing options allow for the option holder to purchase one additional share at an exercise price of $22.00. The option will expire within one year. Assume that at the time there will be an 90% chance that NorCell Inc. shares will sell for $38.00 and a 10% chance that shares will be selling at $20.00. Using the steps to the binomial approach, determine the following:

Based on the binomial approach, the range of payoff values at expiration for NorCell Inc.'s shares and options is

A) $18 (share) and $16 (option)

B) $28 (share) and $26 (option)

C) $25 (share) and $20 (option)

D) $20 (share) and $30 (option)

Given this information, it is possible to create a riskless portfolio by selling one option and purchasing ______ shares.

Assuming that the risk-free rate is 8% and is compounded daily, the equilibrium price of the call option is _______.

Please show basic calculations. Thank you