Questions 1-3 are based on the information that follows. Alanas Corp. stock currently trades at $85 (St) and is expected to be either

$55 or $120 at the end of one year. The (annual) risk-free rate of interest is 8.0%.

1. What is (a) the intrinsic value and (b) the time value of the call option (on a per share basis) when the strike price is $90 (X)?

2. What is (a) the intrinsic value and (b) the time value of the put option (on a per share basis) on the stock in question#1, when the strike price is now $80 (X )?

3. Suppose that I own, 5 million shares of the stock (a) what would it cost for me to hedge my stock position, with strike price on my options of $80 and (b) if at the end of the one year period, assuming that I had hedged my stock position, the stock is trading at $60 what should I do and what would be the worth of my position, taking into account any interest expense?