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We will derive a two - state call option value in this problem. Data: S 0 = $ 1 6 0 ; X = $

We will derive a two-state call option value in this problem. Data: S0= $160; X = $170; 1+ r =1.10. The two possibilities for ST are $190 and $110. The portfolio consists of 1 share of stock and 4 calls short.
Required:
a. The range of S is $80 while that of C is $20 across the two states. What is the hedge ratio of the call? (Round your answer to 2 decimal places.)
b. Calculate the value of a call option on the stock with an exercise price of $170.(Do not use continuous compounding to calculate the present value of X in this example, because the interest rate is quoted as an effective per-period rate.)(Do not round intermediate calculations. Round your answer to 2 decimal places.)

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