Current Stock Price: $30

In one year, stock price will be either 25 or 35

A one-year put option gives the holder the right to sell the stock at 40

Risk-free rate: 2%

A risk-free portfolio can be created by combining shares of stock and 1 put option

a.) Calculate (the hedge ratio) that gives the portfolio the same value in one year regardless of whether the stock falls to 25 or rises to 35

b.) What is the value of this risk-free portfolio one year from today?

c.) What is the value of this risk-free portfolio today?

d.) What is the value of the put option today: