Question: We will derive a two-state call option value in this problem. Data: so and $130. The portfolio consists of 1 share of stock and 4

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: so and $130. The portfolio consists of 1 share of stock and 4 calls short, $210; X = $220; 1 + r= 1.10. The two possibilities for stare $250 Required: a. The range of Sis $120 while that of Cis $30 across the wo stales. 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 $220. (Do not use continuous compounding to calculate the present value of X in 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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