1. If the hedge ratio is 0.620 then a hedge portfolio consists of:

Short position in 1,000 calls and a long position in 620 shares

Short position in 1,000 calls and a short position in 620 shares

Short position in 620 calls and a long position in 620 shares

Short position in 620 calls and a long position in 1,000 shares

Short position in 620 calls and a short position in 620 shares

2. Consider a 1-period BOPM where a period is 1 year. The current stock price is 40. The stock could up by 20% (u=1.2) or down by 10% (0.9) and the risk-free rate is 8%. The strike price of a call option is 45. What is the hedge ratio?

3. Consider a 1-period BOPM where a period is 1 year. The current stock price is 40. The stock could up by 20% (u=1.2) or down by 10% (d=.9) and the risk-free rate is 8%. The strike price of a call option is 45. What is the fair price of this call option?

4. The current stock price is $80. The stock pays a dividend of $2 every quarter. The risk-free rate is 4%. Over each of the next three-month periods the stock could go up by 10% (u=1.1) or down by 5% (d=.95). The option expires after the second dividend is paid. What is the value of p? (Round to 2 decimal places)

5. The current stock price is $80. The stock pays a dividend of $2 every quarter. The risk-free rate is 4%. Over each of the next three-month periods the stock could go up by 10% (u=1.1) or down by 5% (d=.95). The option expires in six months after the second dividend is paid. What is the price of the stock at maturity if stock goes up in the first period and up in the second period? (Round to 2 decimal places)