Today, at t=0, stock XYZ is traded at price S0=100. A year from now, at t=1, the price of stock XYZ can be either equal to S1= S+ = $110, or to S1= S- = $90. The risk-free rate is equal to 1%.

Consider the following derivative security, called make-it-risky (MIR). The payoff of the MIR derivative, at t=1, is calculated according to the following formula : S1 + f * ( S1 X), where f=7 and X=100.

(1pt) What are the payoffs of the MIR security in the two scenarios for XYZ at t=1? (2pt) How many shares of the stock should you be long (or short) and what is the face value of the bond you should short (or long) in order to replicate the payoff of the MIR security? (1pt) What is the price of the MIR security? (1pt) What is the portfolio weight of the stock in the replicating portfolio you found in question 2?