Determine the risk neutral probability of stock

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13. Suppose a 6-month put option on a stock with a strike price of $32. The current stock value is $30 and over the next six months it is expected to rise to $36 or fall to $27. The risk-free interest rate is 6 percent. Determine the risk-neutral probability of the stock rising to $36?
a. 0.365
b. 0.415
c. 0.435
d. 0.465
e. 0.664

14.
Consider a six month put option on a stock with a strike price of $32. The current stock price is $30 and over the next six months it is expected to rise to $36 or fall to $27. The risk-free interest rate is 6 percent. What position in the stock is necessary to hedge a long position in one put option?
a. Short 0.444 shares
b. Long 0.444 shares
c. Short 0.555 shares
d. Long 0.555 shares
e. None of the above

Reference no: EM1373139

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