What is the hedge ratio if the stock goes down one period

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Reference no: EM131568854

Consider a binomial world in which the current stock price of 80 can either go up by 10 percent or down by 8 percent. The risk-free rate is 4 percent. Assume a one-period world. Answer questions 12 through 15 about a call with an exercise price of 80.

Consider a 2 period Binomial World

1) What is the hedge ratio if the stock goes down one period?

a.0.00

b..0725

c.1.00

d. .73

What is the Current Value of the Call?

a.8.00

b.7.30

c.11.13

d. .619

PLEASE EXPLAIN AND SHOW STEPS

Reference no: EM131568854

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