1. Consider a one-time-period, two potential outcome framework where there exists Company Q stock currently selling for $50 per share and a riskless $100 face value TBill currently selling for $90. Suppose Company Q faces uncertainty, such that it will pay its owner either $30 or $70 in one year. Further assume that a call with an exercise price of $55 exists on one share of Q stock.

a. What are the two potential values the call might have at its expiration?

b. What is the riskless rate of return for this example? Remember, the Treasury bill pays $100 and currently sells for $90.

c. What is the hedge ratio for this call option?

d. What is the current value of this option?

e. What is the value of a put with the same exercise terms as the call?