1. Consider the following: S0 = 100; X = 110; rf = 10%; The two possibilities for ST are 130 and 80. What is the hedge ratio of a put option?
2. Consider the question above: Form a portfolio of 3 shares of stock and 5 put options. What is the nonrandom payoff to this portfolio?
3. Consider the above: What is the present value of the portfolio?
4. Given that the stock is currently selling for 100, what is the value of the put option?