Problem 21-3 Binomial model

The stock price of Heavy Metal (HM) changes only once a month: either it goes up by 20% or it falls by 20.1%. Its price now is $44. The interest rate is 0.9% per month.

1. What is the value of a one-month call option with an exercise price of $44? Already Answers Correctly - 4.58
2. What is the option delta? - Already Answered Correct - .499
3. The payoffs of the call option can be replicated by buying shares of stock and borrowing. What amount should be invested in stock and what amount must be borrowed? Current Answers : Amount needed to invest (Incorrect) - $21. 95/ Amount need to borrow (Incorrect) - $17.36
4. What is the value of a two-month call option with an exercise price of $46? - Current Answers (Incorrect) - $4.72
5. What is the option delta of the two-month call over the first one-month period? Current Answers (Incorrect) - .518
   1. NOTE: Please do not answer this question again if you have already answered it incorrectly