Question: Data: S 0 = 109; X = 116; 1 + r = 1.1. The two possibilities for S T are 157 and 75. Required: The

Data: S0 = 109; X = 116; 1 + r = 1.1. The two possibilities for ST are 157 and 75.

Required:

  1. The range of S is 82 while that of P is 41 across the two states. What is the hedge ratio of the put?
  2. Form a portfolio of one share of stock and two puts. What is the (nonrandom) payoff to this portfolio?
  3. What is the present value of the portfolio?
  4. Given that the stock currently is selling at 109, calculate the put value.

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