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:

Useful Life

The estimated period of time an asset is expected to be usable for its intended purpose.

Granite Quarry

A site where granite is extracted from the earth for use in construction and architectural applications.

Depletion Expense

The allocation of the cost of natural resources over their useful life.

Accumulated Depletion

The total amount of value that has been accounted for as a reduction in the value of a natural resource due to its extraction or usage.