QBV, a non-dividend-paying stock, is currently trading for $80 a share. There is a 25-percent chance that

Question:

QBV, a non-dividend-paying stock, is currently trading for $80 a share. There is a 25-percent chance that the stock will trade for $65 in one year, and a 75-percent chance that the price will increase to $105. The risk-free rate is 5 percent per year. All options expire in one year.
a. A call option has a of 100. Determine the hedge ratio.
b. Use the binomial option pricing formula to determine the value of a call with a of $100.
c. Use the put-call parity to determine the value of a put with a of $100.

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.