Question: Consider a two-state outcome for the following problem: Current Stock Price $25.00 Exercise Price $27.00 Risk-free Rate0.05 Share Price, High $30.00 Share Price, Low $20.00

Consider a two-state outcome for the following problem:

Current Stock Price $25.00

Exercise Price $27.00

Risk-free Rate 0.05

Share Price, High $30.00

Share Price, Low $20.00

Required:

Using the data above, please find the hedge ratio. You currently own several shares of this company. Purchase puts according to the Hedge ratio to construct a non-random portfolio. Show the payoff for both outcomes, then solve for present value and the price of the put.

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