We will derive a two-state put option value in this problem. Data: S0 = $250; X = $260; 1 + r = 1.10. The two possibilities for ST are $280 and $180. Required:

a. The range of S is $100 while that of P is $80 across the two states. What is the hedge ratio of the put? (Negative value should be indicated by a m

b. Form a portfolio of four shares of stock and five puts. What is the (nonrandom) payoff to this portfolio? (

c. What is the present value of the portfolio?

d. Given that the stock currently is selling at $250, calculate the put value.