What is the present value of the portfolio

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Derive a two-state call option value in this problem. S0=100; X=110; 1+r=1.10. The two possibilities for ST are $130 and $80. a. Show that the range of stock price is 50 while that of call is 20 across the two states. What is the hedge ratio (?) of the call? b. Form a portfolio by longing ? shares of stock and shorting 1 call. What is the payoff to this portfolio? c. What is the present value of the portfolio? d. Given that the stock currently is selling at 100, show that the value of the call must be 10.91.

Reference no: EM131553516

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