PLEASE SHOW THE MATHNOT THE EXCEL!!

Suppose that

The current price of MKN corporations common shares isS0= $50

MKN doesnt pay dividends

The yield curve is flat at 10%

Over the next year the stock of MKN will either

go up by 40%, or

go down by 10%

(a) What is the replicating portfolio for a one-year at-the-money call on MKN?What is the call worth?

(b) What is the replicating portfolio for the at-the-money put? Whats it worth?

Problem 8 (Binomial option pricing). Suppose that The current price of MKN corporations common shares is So = $50 MKN doesn't pay dividends The yield curve is flat at 10% Over the next year the stock of MKN will either go up by 40%, or go down by 10% (a) What is the replicating portfolio for a one-year at-the-money call on MKN? What is the call worth? (b) What is the replicating portfolio for the at-the-money put? What's it worth