Problem 21-7 Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would hedge one option. The possible end-of-year stock prices, uso = $85 (up state) and d5o = $54 (down state). a. What would be the call option hedge ratio for each of the following exercise prices: $85. $74. $64. $54, given the possible end-of- year stock prices, uso = $85 (up state) and do = $54 (down state)? (Round your answers to 3 declmal places.) Exercise Price 85 Hedge Ratio 74 64 54 b. What do you conclude about the hedge ratio as the option becomes progressively more in the money? Increases to a maximum of 10 O Decreases to a minimum of o