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3. Introduction to option pricing models Aa Aa E Stay Puft Corp. stock is currently selling for $84.56 per share. Options permit the holder to

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3. Introduction to option pricing models Aa Aa E Stay Puft Corp. stock is currently selling for $84.56 per share. Options permit the holder to buy one share at an exercise price of $75.00. These options will expire at the end of one year. When the option expires, Stay Puft Corp.'s stock will either be selling for $90.00 or $65.00. The range of Stay Puft Corp.'s ending stock prices is In contrast, the range of Stay Puft Corp.'s ending option payoffs is To construct a hedged portfolio, the investor's goal is to have the portfolio payoff be the same if the stock goes up or down. Suppose Julian is planning on writing one call option, how many shares of stock should he buy to set up the hedge? O 0.60 shares O 0.55 shares O 0.40 shares O 0.70 shares O 0.50 shares If the investor decides to go forward with creating this riskless hedge, the net payoff will be What will be the equilibrium price of the call option if the risk-free rate is 7%? O $11.43 $14.29 $13.58 $15.00 $12.86

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