The next two questions are based on the following data for a single-period binomial model.
YBM’s stock price S is $102 today. — After six months, the stock price can either go up to $115.63212672, or go down to $93.52995844. — Options mature after T = 6 months and have an exercise price of K = $105. — The continuously compounded risk-free interest rate r is 5 percent per year.
1. Given the above data, the hedge ratio and the call option’s value are given by:
a) 0.2523 for the hedge ratio and $4.1853 for the call option’s value
b) 0.3810 for the hedge ratio and $5.5557 for the call option’s value
c) 0.4810 for the hedge ratio and $5.1853 for the call option’s value
d) 0.5810 for the hedge ratio and $6.2543 for the call option’s value
e) None of these answers are correct.
2. Given the above data, the hedge ratio and the put option’s value are given by:
a) 0.2523 for the hedge ratio and $2.35 for the put option’s value
b) 0.2523 for the hedge ratio and $4.81 for the put option’s value
c) 0.5190 for the hedge ratio and $5.59 for the put option’s value
d) 0.5190 for the hedge ratio and $5.59 for the put option’s value
e) None of these answers are correct.