Questions 9 to 15 are based on the following information:

IBM is trading at $72 per share today. Under a one-step binomial setting, its price can either go up to $100 in a good economy or go down to $60 per share in a bad economy next year. For simplicity, let's assume the interest rate on T-Bill is zero and the stock does not pay dividend.

Question 9 (1 point)

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What's the replicating portfolio for a call option with a strike price of $80?

Question 9 options:

	Short 0.5 share of IBM; Long $30 T-Bills;
	Short 0.25 share of IBM; Short $25 T-Bills;
	Buy 0.5 share of IBM; Short $30 T-Bills;
	Buy 0.25 share of IBM; Long $25 T-Bills;

Question 10 (1 point)

What's the premium for a call option with a strike price of $80?

Question 10 options:

	$4
	$5
	$6
	$7

Question 11 (1 point)

What's the replicating portfolio for a put option with a strike price of $70?

Question 11 options:

	Short 0.5 share of IBM; Long $30 T-Bills;
	Short 0.25 share of IBM; Long $25 T-Bills;
	Buy 0.5 share of IBM; Short $30 T-Bills;
	Buy 0.25 share of IBM; Short $25 T-Bills;

Question 12 (1 point)

What's the premium for a put option with a strike price of $70?

Question 12 options:

	$4
	$5
	$6
	$7

Question 13 (1 point)

What is the risk neutral probability for the stock to go down to $60?

Question 13 options:

	0.2
	0.3
	0.5
	0.7

Question 14 (1 point)

(*) A digital option is an option that always pays off $1 if the option expires in the money, and $0 otherwise. For example, in this question a digital call option with a strike price of $80 will pay only $1 rather than $20 when stock price goes to $100, and $0 otherwise. What should be the price for this digital call option today?

Question 14 options:

	$0
	$0.3
	$0.7
	$1

Question 15 (1 point)

If the current stock price is $80, instead of $72, what is the risk neutral probability for the stock to go down to $60?

Question 15 options:

	0.2
	0.3
	0.5
	0.7