4. Option pricing model - Binomial approach Learn Corp. (Ticker: LC), an education technology company, is considered to be one of the least risky companies in the education sector. Investors trade call options for Learn Corp, whose stock is currently trading at $80.00. Suppose you are interested in buying a call option with a strike price of $100.00 that expires in 6 months. (Assume that you get the option for freel) Based on speculations and probability analysis, you compute and collect the following information for your price analysis of the option: For LC's options, time until expiration (t) is taken as 0.50 year (6 months/12 months). LC's stock could go up by a factor of 1.90 (U). LC's stock could decline by a factor of 0.65 (d). Therefore, if the At this time, LC's stock price is option is out-of-the-money, you and if you exercised the option, your payoff would be exercise the option. Calculate the ending stock price of Learn Corp. for both possible outcomes and the payoff in both situations, Price Increases Price Decreases Stock price PC) Payoff CM Stock price P(d) Payoff Cut Investors use options and stocks, based on the range in which a stock is likely to go up or go down to create portfolios that help them generate riskless payoffs. This is called creating a hedge portfolio Suppose you sell one call option on Learn Corp.'s stock to create a riskless hedged portfolio. Your hedge portfolio will have a certain number of shares and a certain value based on the payoff it generates Based on your understanding of a hedge portfolio and assuming 365 day-based compounding, complete the following steps to find the value of the call option. (Hint. Please round all answers to four decimal places.) Step 1: The total number of shares of LC's stock in the portfolio is Step 2: The payoff from the portfolio if the stock is down is 1 Step 3: If the annual risk-free rate is 49, the current value of the portfolio if the stock is down will be Ch OS: Assignment Financial Options Team Corp. (Tider C), education technology company. In order to be one of the best ridy companies in die von trade wall options for Learn Corp. whose stod herrently trading $80.00 Su you are intending the $100,00 that expires 6 months (Assume that you get the Pret) sed or spections and analy, you can the following information for your price analysis of the ston year (6/12 months) . For options, time untertion ( LCS stock cukup by factor 1.90(M) LCS stock could dedina of 0.65 (d) At this time, o po and if you were the tour wat would be 420.00 Therefore, the option is out of the money, you who then Calculate the stock price of Leave for both be outcomes and the rol in this Price Increases Stock price Plu) Payoff Price Decre Stock price Polt 0152.00 152.00 352.00 30.00 Investors use options and stocks, based on the range in which a stockisely to go up go down to create portfolios that the generate riskless payoffs. This is called creating a hedge portfolio Suppose you sell one call option on Learn Corp. stock to create a nikde nesged portfoto. Your heage portfolio will have a certain number of here and a certain value based on the payoff at generates Based on your understanding or a hedge portalio and assuming 25 day-tuned compounding, complete the following atupe to find the value of the cat ption (Hint: Please round all answers to four decimal places) Step 1. The total number of shares of LC stock in the portfolio is Step 2: The payoff from the portfolio the stock is down is Step 3: If the annual riske free rate is 4%, the current value of the portfolio the stock is down will be Step 4. The current value of the option in the stock is down