Madeline Manufacturing Inc.$’$s current stock price is $$\mathrm{<font><font>4</font></font>}\mathrm{<font><font>0</font></font>}$ per share. Call options for this stock exist that permit the holder to purchase one share at an exercise price of $$\mathrm{<font><font>3</font></font>}\mathrm{<font><font>0</font></font>}<font><font>.</font></font>$ These options will expire at the end of $\mathrm{<font><font>1</font></font>}$ year, at which time Madeline$\mathrm{<font><font>’</font></font>}$s stock will be selling at one of two prices $$\mathrm{<font><font>2</font></font>}\mathrm{<font><font>5</font></font>}$ or $$\mathrm{<font><font>5</font></font>}\mathrm{<font><font>0</font></font>}<font><font>.</font></font>$ The risk$<font><font>-</font></font>$free rate is $\mathrm{<font><font>4</font></font>}<font><font>\%</font></font><font><font>.</font></font>$ Using the binomial option pricing model, create a riskless hedged investment and answer the following question:

After the payoffs have been equalized and the riskless hedged investment is created, what is the value of the portfolio in one year? Round your answer to the nearest cent.

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Sure lets break it down step by step 1 Calculate Delta Delta fracSu SdS1 r ... View the full answer