Use the Two-State Put-Option Value in This Problem

question 57

Multiple Choice

Use the two-state put-option value in this problem.S_O = $100; X = $120; the two possibilities for S_T are $150 and $80.The range of P across the two states is _____, and the hedge ratio is _______.

• A)$0 and $40; -4/7
• B)$0 and $50; +4/7
• C)$0 and $40; +4/7
• D)$0 and $50; -4/7

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Definitions:

Paid-in Capital

The total amount of cash and other assets that shareholders have contributed to the company in exchange for shares.

Dividends

A portion of a company's earnings that is distributed to shareholders.

Voting Rights

The privileges granted to shareholders to vote on matters affecting the company they have invested in.