Question: We will derive a two-state call option value in this problem. Data: 50 = 260; X = 270; 1 + r= 1.1. The two possibilities

We will derive a two-state call option value in this problem.

We will derive a two-state call option value in this problem. Data: 50 = 260; X = 270; 1 + r= 1.1. The two possibilities for St are 300 and 180. a. The range of Sis 120 while that of Cis 30 across the two states. What is the hedge ratio of the call? (Round your answer to 2 decimal places.) Hedge ratio X This is a numeric cell, so please enter numbers only. b. Calculate the value of a call option on the stock with an exercise price of 270. (Do not use continuous compounding to calculate the present value of Xin 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.) Call value

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