Question: Exhibit 1. Consider a binomial world in which the current stock price of 80 can either go up by 10 percent or down by 8

Exhibit 1. Consider a binomial world 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 and the call exercise price 80. -----SHOW ALL WORK

6. Consider the information given in Exhibit 1. Assume the one-period binomial model. What is the hedge ratio?

7. Consider the information given in Exhibit 1. Assume the one-period binomial model. What is the theoretical value of the call?

8. Consider the information given in Exhibit 1. Assume the two-period binomial model. What is the hedge ratio if the stock goes down one period?

9. Consider the information given in Exhibit 1. Assume the two-period binomial model. What is the current value of the call?

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