Question: We will derive a two-state put option value in this problem. Data: S0 = $220; X = $230; 1 + r = 1.10. The two

We will derive a two-state put option value in this problem. Data: S0 = $220; X = $230; 1 + r = 1.10. The two possibilities for ST are $250 and $150. 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? (Nonrandom payoff)

c. What is the present value of the portfolio? (Present value)

Thank You!

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