1. Compute the probability of the up-step: q = ( S S_d ) / ( S_u S_d )

Enter as decimal ____

2. With the stock equal to 55 one week from now, the call value is ___ (6)

3. With the stock equal to 45 one week from now, the call value is ___ (0)

4. With the stock equal to 50 today, the call value is ___ (3)

5. Today, the delta (hedge ratio) is = ( C_u C_d ) / ( S_u S_d ) ___

6. A hedger who has just sold calls on 100 shares would buy ___ shares

Consider a simple one-step binomial tree below, the numbers are stock prices. Today, the stock is at 50 and can go up to 55 and down to 45 over the next week, the expiry date. We are pricing a call struck at 49. Answer the next several questions related to the situation. 55 50 45 Consider a simple one-step binomial tree below, the numbers are stock prices. Today, the stock is at 50 and can go up to 55 and down to 45 over the next week, the expiry date. We are pricing a call struck at 49. Answer the next several questions related to the situation. 55 50 45