Q4: The following information is provided in the context of a two period (two six month periods) binomial option pricing model. A stock currently trades at $40 per share, and a call option on the stock has an exercise price of $38. The stock is equally likely to rise by 10% or fall by 10% during each six month period. The one-year risk free rate is 5%. Find the probability that the stock falls each period. Round intermediate steps and your final answer to four decimals.

A) 0.3765

B) 0.6235

C) 0.7500

D) 0.2500

Q9: Hedge ratios specify the number of puts or calls that must be written or purchased to eliminate the risk associated with changes in the value of the underlying asset. True or False

Q15: Assume that you create a hedged portfolio consisting of a long position in stock and enough call options contracts to eliminate the price risk. The expected return of your portfolio will be zero since the variance in your returns will be zero. True False