Question: We will derive a two-state call option value in this problem. Data: 5o = 100, X= 110:1 + r= 110. The two possibilities for Sy

We will derive a two-state call option value in this problem.

We will derive a two-state call option value in this problem. Data: 5o = 100, X= 110:1 + r= 110. The two possibilities for Sy are 130 and 80. a. The range of Sis 50 while that of Cis 20 across the two states. What is the hedge ratio of the call? (Round your answer to 2 decimal places.) Hedge ratio b. Calculate the value of a call option on the stock with an exercise price of 110. (Do not use continuous compounding to calculate the present value of Xin this example, because the interest rate is quoted as an effective per-period rate.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Call value

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