Question: Problem 9 (Binomial option pricing). SHOW YOUR WORK Suppose that - The current price of MKN corporations common shares is S0 = $50 - MKN

Problem 9 (Binomial option pricing). SHOW YOUR WORK Suppose that - The current price of MKN corporations common shares is S0 = $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?

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