Consider a two-state outcome for the following problem:                   Winterhold Publishing House       Current Stock Price $25.00        Exercise Price $27.00        Risk-free Rate 0.05       Share Price, High $30.00        Share Price, Low $20.00                  Required:         Using the data above, please find the hedge ratio. You currently own several shares of this company. The purchase puts according to the Hedge ratio to construct a non-random portfolio. Show the payoff for both outcomes, then solve for present value and the price of the put.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Consider a two-state outcome for the following problem:        
         
Winterhold Publishing House      
Current Stock Price $25.00       
Exercise Price $27.00       
Risk-free Rate 0.05      
Share Price, High $30.00       
Share Price, Low $20.00       
         
Required:        
Using the data above, please find the hedge ratio. You currently own several shares of this company. The purchase puts according to the Hedge ratio to construct a non-random portfolio. Show the payoff for both outcomes, then solve for present value and the price of the put.
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