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Consider a binomial world in which the current stock price of 75 can either go up by 10 percent or down by 8 percent. The
Consider a binomial world in which the current stock price of 75 can either go up by 10 percent or down by 8 percent. The risk-free rate is 4 percent. Assume a one-period world. An exercise price is 80.
What is the hedge ratio of the call?
a) 0.714
b) 0.571
c) 0.823
d) 0.185
e) none of the above
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