Reconsider the determination of the hedge ratio in the two-state model (Section 16.2), where we showed that one-third share of stock would hedge one option.

a.	Assuming a stock price of $266, what would be the hedge ratio for each of the following exercise prices: $266, $228, $190, $133? (Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places.)

X		Hedge Ratio
$	266
$	228
$	190
$	133

b.	What do you conclude about the hedge ratio as the option becomes progressively more in the money?

multiple choice

• Increases to a maximum of 1.0

• Decreases to a minimum of 0