Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would hedge one option. The possible end-of-year stock prices, uS0 = $145 (up state) and dS0 = $95 (down state).

a. What would be the call option hedge ratio for each of the following exercise prices: $145, $134, $115, $95, given the possible end-of-year stock prices, uS0 = $145 (up state) and dS0 = $95 (down state)? (Round your answers to 3 decimal places.)

Exercise Price	Hedge Ratio
$145	?
$134	?
$115	?
$95	?

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

Increases to a maximum of 1.0

Decreases to a minimum of 0