Question: Consider a binomial model in which the current stock price of $80 can either go up by 10 percent or down by 8 percent. The

Consider a binomial model in which the current stock price of $80 can either go up by 10 percent or down by 8 percent. The risk-free rate is 4 percent.

Assume a one-period world. Answer questions a-f about a call with an exercise price of 80.

a. What would be the stock price if it goes up?

b. What would be the stocks price if it goes down?

c. What is the value of the call at the end of period one if the stock goes up? If the stock goes down?

d. What is the probability the stock goes up? Goes down?

e. What is the value of the call at time zero?

f. What is the hedge ratio

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