Intro The current price of a non-dividend-paying stock is $100 and you expect the stock price to be either $220 or $40 after 0.5 years. A European call option on the stock has a strike price of $109 and expires in 0.5 years. The risk-free rate is 5% (EAR). - Attempt 1/10 for 10 pts. Part 1 What is the hedge ratio (delta)? .62 Correct Option payoff when the stock price goes up or down: Cu = max(0, Su - X) = max(0, 220 - 109) = 111 Cd = max(0, Sd - X) = max(0, 40 - 109) = 0 Hedge ratio (delta): Cu Cd Su Sa 111 - 0 = 0.617 220 40 The hedge ratio for a call option is the number of shares of stock that we need to buy for each call written so that the portfolio is risk-free (perfectly hedged), hence the term hedge ratio. In this case, we need 0.617 shares to hedge each option. Part 2 | Attempt 1/10 for 10 pts. How much money do you need to borrow to create a portfolio that replicates the payoff from one call option? 1+ decimals Submit Attempt 1/10 for 10 pts. Part 3 What should be the price (premium) of the call option? 1+ decimals Submit Intro The current price of a non-dividend-paying stock is $657 and the annual standard deviation of the rate of return on the stock is 41%. A European call option on the stock expires in 0.5 years. Its strike price is $630. The risk-free rate is 3% (continuously compounded). Part 1 8 Attempt 1/10 for 10 pts. What should be the price (premium) of the call option? 0+ decimals Submit Intro The current price of a non-dividend-paying stock is $12.86 and you expect the stock price to either go up by a factor of 1.372 or down by a factor of 0.729 over the next 0.4 years. A European call option on the stock expires in 0.4 years. Its strike price is $13. The risk-free rate is 3% (annual, continuously compounded). Attempt 1/10 for 10 pts. Part 1 What is the value of the option? k+ decimals Submit