Question: a. Consider a call option. If, in a two-state model, a stock can take a price of $132 or $99, what would be the hedge

a. Consider a call option. If, in a two-state model, a stock can take a price of $132 or $99, what would be the hedge ratio for each of the following exercise prices: $132, $125, $115, $99? (Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places.)

X		Hedge Ratio
$	132
$	125
$	115
$	99

b. What do you conclude about the hedge ratio as the option becomes progressively more in the money?

	Increases to a maximum of 1.0
	Decreases to a minimum of 0

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