You Are Evaluating a Call Option with an Exercise Price

Multiple Choice

You are evaluating a call option with an exercise price of $140. The underlying stock has possible prices of $135 or $160 when the option expires. If the risk-free rate is 6%, how many options do you need to buy along with the risk-free asset to replicate the stock?

A) 0.80 calls
B) 1.00 calls
C) 1.25 calls
D) 1.75 calls
E) 2.25 calls