You are evaluating a stock that is currently selling for $110 per share. Over the investment period you think that the stock price might go down 25% or go up 25%. There is a call option available on the stock with an exercise price of $130. Answer the following questions about hedging your position in the stock. Assume that you will hold one share, and the risk-free rate is 4%. A) what is the hedge ratio? How much would you borrow to purchase the stock? What is the amount of your net investment in the stock?

B) How many call options will you combine with the stock to construct the perfect hedge? Will you buy the calls or sell the calls? What must the price of one call option be?

C) What must the price of one put option with an exercise price of $130 be?