Question #3: Option Valuation [27 Points] Use the following scenario to answer Parts (a) - (b) Suppose that the price of a share of Cadence Design Systems, Inc. stock (CDNS) today is at $159. You have forecasted that in one year the stock price will either rise to $184 or fall to $144 Suppose further that you can either buy or sell a call option on CDNS stock with a strike price of $150. Assume that this is a European style contract that expires exactly in one year and that the risk-free interest rate is 2.0%. (a) Refer to the above scenario. Calculate the Hedge Ratio (H). [4 Points] (b) Refer to the above scenario. Using the Binominal Option Pricing Model calculate the price of the call option today. [10 Points] Use the following scenario to answer Parts (c) - (d) Consider a share of Dolby Laboratories, Inc. stock (DLB) that currently trades for $75.30. A call option on this stock has a strike price of $70 and it expires in 9 months (0.75 years). Assume that the standard deviation (o) for the stock is 0.50, the risk-free rate (r) is 0.02, and the dividend rate (8) is 0. (c) Refer to the above scenario. Calculate the intrinsic value of the call option on DLB using the Black- Scholes option pricing formula. [Hint: You will need to use a standard normal distribution table. Also when calculating di and d2 round to two decimal places.] [10 Points] (d) Using your answer from Part (c) what is the price of the put-option, with the same strike price and expiration date as the call, using the same information? [3 Points]