1. We will derive a two-state put option value in this problem. Data: S0=100, X=110, interest rate is 10%. The two possibilities for St are 130 and 80.

a. What is the hedge ratio of the put?

b. Form a portfolio of three shares of stock and five puts. What is the payoff to this portfolio? What is the present value of the portfolio?

c. Given that the current stock price is 100, what is the value of the put?