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What is the amount of borrowing

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Moscha's current stock price is $150 per share. In every 6 month period, the price will either go up by 25% or decrease by 20%. Suppose the risk free rate is 12% per year.

Problem A. Use one-step binomial tree to value a call option on Moscha that expires in six months with exercise price of 5140.

Problem B. Replicate the payoff of call option in part A using shares of stocks and borrowing. What is the amount of borrowing?

Reference no: EM132794363

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