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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 120 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.)
A. 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 290, calculate the put value. (Round your answer to 2 decimal places.)
Put value $_____________________
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Calculate the following: avg number of orders. total annual inventory costs. If 50 orders are placed per year, what is the total annual inventory cost?
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According to the EOQ model, a very large increase in sales will result in
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