Question: We will derive a two-state put option value in this problem. Data: S0 = 290; X = 300; 1 + r = 1.1. The two

We will derive a two-state put option value in this problem. Data: S0 = 290; X = 300; 1 + r = 1.1. The two possibilities for ST are 330 and 180.

a. The range of S is 150 while that of P is 30 across the two states. 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 300. (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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