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4. (35pt) The current price of Coca Cola is S0=$150 per share. Brady sold one call option 1 of Coca Cola, with strike price K=200

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4. (35pt) The current price of Coca Cola is S0=$150 per share. Brady sold one call option 1 of Coca Cola, with strike price K=200 and expires in one year, to Ethan. However, Brady worries that the price of Coca Cola may go up significantly. a. Explain why Brady can mitigate the upward price risk by taking a long position in the Coca Cola stock b. Suppose a year from today, the price of Coca Cola can be either $400 (high state) or $120 (low state). Discuss Ethan's strategy in these two states. Specifically, in each state, should he exercise the call option? c. Assume that Brady's portfolio consists of (a) a short position in the call option, and (b) a long position in x shares of Coca Cola. How many shares of Coca Cola should Brady buy (i.e., what is the value of x? ) in order to make his portfolio riskless? (i.e., the portfolio has the same value in both states) d. Using the binomial tree model, find the fair price of the call option today

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