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What is the hedge ratio for portfolio

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Upside Inc. currently trades for $50 per share. It is expected with equal probability to either rise in price to $55 per share in one year or $75 per share in one year. Assume the binomial model for option contracts.

a) Assume you will build a portfolio consisting of one share of Upside Inc. and call options onUpside Inc. with a strike price of $50 (for one share of stock). What is the hedge ratio for thisportfolio?

b) What is the price of a call option for this portfolio assuming a 10% risk-free rate?

c) Using put-call parity, what must the price of a put option with a strike price of $50 be today assuming a 10% risk-free rate?

Reference no: EM131071879

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