Question: Problem 21-10 Data: S 0 = 100; X = 110; 1 + r = 1.1. The two possibilities for S T are 130 and 30.

Problem 21-10

Data:S₀= 100;X= 110; 1 +r= 1.1. The two possibilities forS_Tare 130 and 30.

a-1.The range ofSis 100 while that ofCis 20 across the two states. What is the hedge ratio of the call?(Round your answer to 2 decimal places.)

a-2.Calculate the value of acalloption on the stock with an exercise price of 110. (Do not use continuous compounding to calculate the present value ofXin this example because we are using a two-state model here; the assumed 10% interest rate is an effective rate per period.)(Do not round intermediate calculations. Round your answer to 2 decimal places.)

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