1. TMS is currently trading at $50 per share. An executive at TMS has told you that if the company's recently introduced new products are well received the stock will increase to $60 and if they are not well received the stock price will drop to $42 in 6 months. The current six month interest rate is 6%. You wish to calculate C(50,-5, 50) using BOPM. a) Find "u" and "d" b) Find Cu and Cd c) Calculate C(50, .5, 50) d) Find the hedge ratio e) Describe a risk free portfolio that can be composed using the hedge ratio f) Show that the portfolio is in fact risk free g) If the actual market price of this option was $4, what strategy would you employ and what would be your rate of return? h) Repeat part g if the market price of the option was $7 1. TMS is currently trading at $50 per share. An executive at TMS has told you that if the company's recently introduced new products are well received the stock will increase to $60 and if they are not well received the stock price will drop to $42 in 6 months. The current six month interest rate is 6%. You wish to calculate C(50,-5, 50) using BOPM. a) Find "u" and "d" b) Find Cu and Cd c) Calculate C(50, .5, 50) d) Find the hedge ratio e) Describe a risk free portfolio that can be composed using the hedge ratio f) Show that the portfolio is in fact risk free g) If the actual market price of this option was $4, what strategy would you employ and what would be your rate of return? h) Repeat part g if the market price of the option was $7