Question: Consider a two-period binomial model in which a stock currently trades at a price of $85. The stock price can go up 30 percent or

Consider a two-period binomial model in which a stock currently trades

Consider a two-period binomial model in which a stock currently trades at a price of $85. The stock price can go up 30 percent or down 27 percent each period. The risk free rate is 4 percent. (a) Calculate the price of a put option expiring in two periods with exercise price of $70. (b) Based on your answer in (a), calculate the number of units of the underlying stock that would be needed at each point in the binomial tree in order to construct a risk-free hedge. Use 15,000 puts

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