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Consider a stock that is currently selling for $50. In one year from now, the value...

  1. Consider a stock that is currently selling for $50. In one year from now, the value of the stock is expected to be either $45 or $60 (with equal probability). Assume that the risk-free interest rate is 4% associated with a risk-free bond with face value =$100 that can be purchased or sold.
    1. How many shares of the above stock and the risk-free bond would generate payoffs equivalent to a (European) call option on the stock that has an exercise price equal to $54.
    2. What is the price of this call option?
    3. What is the price of the (European) put option with exercise price equal to $54?
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