Question: We will derive a two-state call option value in this problem. Data: Se=$140;X=$150;1+r=110. The two possibilities for ST are $170 and $70. The portfolio consists

We will derive a two-state call option value in this problem. Data: Se=$140;X=$150;1+r=110. The two possibilities for ST are $170 and $70. The portfolio consists of 1 share of stock and 5 calls short. Required: a. The range of S is $100 while that of C is $20 across the two states. What is the hedge ratio of the call? (Round your answer to 2 decimal places.) b. Calculate the value of a call option on the stock with an exercise price of $150. (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 intermedia calculations. Round your answer to 2 decimal places.)

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