1. You are evaluating TSLA stock at a price of $325. It is rumored AAPL will potentially announce a buyout for TSLA in the next 3 months. If they do, you believe the stock will rise to $422.50. If the rumor is not true you believe the stock will fall to $292.50.

1. If the annual risk free rate of interest is 8.24% (so the return on a risk free asset over the next 3 months will be 2%), using a one period binomial model what should the price of a call be with a $350 strike price with 3 months to expiration?

2. What would the hedge ratio be of the above call?

3. What is the p-ratio (Binomial probability) of the above Binomial model?

4. If you sold one call (representing 100 shares) what would you need to do with the underlying stock to get delta neutral?

5. Assume there is a put with the same expiration and strike pric What should be the price of the put (assuming they are European)?