Question: We will derive a two-state put option value in this problem. Data: S0 = 100; X = 110; 1 + r = 1.10. The two

We will derive a two-state put option value in this problem. Data: S0 = 100; X = 110; 1 + r = 1.10. The two possibilities for ST are 130 and 80.

a. The range of S is 50 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 110. (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.)

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