Intro

The current price of a non-dividend-paying stock is $227.72 and you expect the stock price to be either $296.04 or $175.17 after 0.5 years. A European call option on the stock has a strike price of $220 and expires in 0.5 years. The risk-free rate is 8% (EAR).

1. What is the hedge ratio (delta)?

2. How much money do you need to invest in bonds to create a portfolio that replicates the payoff from one put option?

3. What should be the price (premium) of the put option?