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You want to buy a stock that is currently selling for ( $ 4 0 ) , You forecast that in one
You want to buy a stock that is currently selling for $ You forecast that in one year, the stock's price will be either $ or $ with equal probabilities. There is a oneyear call option on the stock available with an exercise price of $ You are able to borrow at a rate: of a What will be the call's value if the stock price is $ in one year? What will be the cali's value if the stock price is $ in one year? Round your answers to the nearest dollar. b What is the hedge ratio you should use? Round your answer to decimal places. c Assume that you can purchase fractional shares of stock. How many shares or stock would you buy? Round your answer to decimal places.
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