Question: 1 . ( 2 0 points ) Consider a two - period binomial model in which a stock currently priced at $ 6 5 can

1.(20 points) Consider a two-period binomial model in which a stock currently priced at $65 can rise by 20% or fall by 17% per period. The risk-free rate is 5% per period. a. Calculate the price of a call option expiring in two periods with an exercise price of $60. b. Based on your answer to part (a), calculate the number of units of the underlying stock that would be needed at each point in the binomial tree to construct a risk-free hedge. Use 10,000 calls. c. Calculate the price of a call option expiring in two periods with an exercise price of $70. d. Based on your answer to part (c), calculate the number of units of the underlying stock that would be needed at each point in the binomial tree to construct a risk-free hedge. Use 10,000 calls.

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