Question: We will derive a two-state put option value in this problem. Data: S 0 = $250; X = $260; 1 + r = 1.10. The

We will derive a two-state put option value in this problem. Data: S₀ = $250; X = $260; 1 + r = 1.10. The two possibilities for S_T are $280 and $180.

Required:

a. The range of S is $100 while that of P is $80 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 four shares of stock and five 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?

d. Given that the stock currently is selling at $250, calculate the put value

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