Question: Question 9: Please answer all parts We will derive a two-state put option value in this problem. Data: S0=$110;X=$120;1+r=1.10. The two possibilities for ST are

Question 9: Please answer all parts

We will derive a two-state put option value in this problem. Data: S0=$110;X=$120;1+r=1.10. The two possibilities for ST are $140 and $100. Required: a. The range of S is $40 while that of P is $20 across the two states. What is the hedge ratio of the put? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) b. Form a portfolio of two shares of stock and four puts. What is the (nonrandom) payoff to this portfolio? (Round your answer to 2 decimal places.) c. What is the present value of the portfolio? (Round your answer to 2 decimal places.) d. Given that the stock currently is selling at $110, calculate the put value. (Do not round intermediate calculations and round your answer to 2 decimal places.)

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