1. Suppose you are given the following information: stock price = 20, strike price = 20, u = 1.167, d = 0.851, n = 2 (two periods), r = 2.00% (per period). Replicate the two-period binomial tree and clearly list the stock price, the option price, and the hedge ratio at each node.

2. Suppose you are given the following information: stock price = 30, u = 1.266, d = 0.756, n = 2 (two periods), r = 3.00% (per period), and pays no dividend. Suppose you short a strangle with a call option that has a strike price of $35 and a put option that has a strike price of $25, what are the breakeven prices based on a two-period binomial tree?

3. Suppose you are given the following information: stock price = 30, strike price = 30, u = 1.266, d = 0.756, n = 2 (two periods), r = 3.00% (per period), and pays no dividend. Suppose you short a call option calculate your profit or loss, if the stock finishes at the highest level, the medium level, and the lowest level (unit of trade is 100).

4. In the put-call parity that we discussed in the slides, what are the names of the two portfolios involved and how each portfolio is constructed? If the put price is less than the price implied by the put-call parity relation, how an investor can arbitrage for free profits?