state whether it is TRUE or FALSE and EXPLAIN your reason.

Assume a stocks price follows the binomial model. At the end of three months it can either increase from its current price of $50 to $55, or else decrease to $45. A derivative written on the stock will be worth zero if the stock increases in price, and $40 if the stock decreases. A long position in the derivative can be hedged by shorting 4 shares.