Question: Please Show Your work Consider a binomial world in which the current stock price of 80 can either go up by 10 percent or down

Please Show Your work

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, a call with an exercise price of 80. Extend the one-period binomial model to a two-period world. Answer questions 16 through 18.

16. What is the value of the call if the stock goes up, then down?

a. 0.96

b. 16.80

c. 8.00

d. 0.00

e. none of the above

17. What is the hedge ratio if the stock goes down one period?

a. 0.00

b. 0.0725

c. 1.00

d. 0.73 168

e. none of the above

18. What is the current value of the call?

a. 8.00

b. 7.30

c. 11.13

d. 0.619

e. none of the above

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