Question: We will derive a two-state put option value in this problem. Data: S 0 = 120; X = 130; 1 + r = 1.1. The

We will derive a two-state put option value in this problem. Data: S0 = 120; X = 130; 1 + r = 1.1. The two possibilities for ST are 140 and 90.

a.

The range of S is 50 while that of P is 40 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.)

Hedge ratio

b-1.

Form a portfolio of 4 shares of stock and 5 puts. What is the (nonrandom) payoff to this portfolio?(Round your answer to 2 decimal places.)

Nonrandom payoff $

b-2. What is the present value of the portfolio? (Round your answer to 2 decimal places.)

Present value $

c.

Given that the stock currently is selling at 120, calculate the put value. (Round your answer to 2 decimal places.)

Put value $

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