 Solution

Under the pricing measure, the ex-dividend stock drift is $r-\delta =0.04$. ThusA direct replication holds $2e^{-\delta (T-t)}$ shares and reinvests every dividend into more shares. The share count grows at rate $\delta$, reaching two shares at expiry, with no external cash input. This payoff contains only the terminal ex-dividend stock value, unlike part (b), which also includes the separately accumulated dividends.