A non-dividend paying stock has a current price of R100. In any unit of time the price of the stock is expected to increase by 10% or decrease by 5%. The continuously compounded risk-free interest rate is 4% per unit of time. A European call option is written with a strike price of R103 and is exercisable after two units of time, at t = 2. Establish, using a binomial tree, the replicating portfolio for the option at the start and end of the first unit of time, i.e. at t = 0, 1. Hence, calculate the value of the option at t = 0. [20]