Problem 1. Suppose the share price of a certain stock is $8 today and that it will either be $9 or $7 in one month's time and will move, if at $9, to either $8 or $12 and, if at $7, to either $8 or $6 in the next month. Describe the portfolio consisting of shares and bonds which will hedge the risk on a call option on one share in two months' time. Assume r=5% and the strike price is $9. Hint: Use the example in Lecture 19. Problem 1. Suppose the share price of a certain stock is $8 today and that it will either be $9 or $7 in one month's time and will move, if at $9, to either $8 or $12 and, if at $7, to either $8 or $6 in the next month. Describe the portfolio consisting of shares and bonds which will hedge the risk on a call option on one share in two months' time. Assume r=5% and the strike price is $9. Hint: Use the example in Lecture 19