We will derive a two-state put option value in this problem. data: s0 = 180; x = 190; 1 + r = 1.1. the two possibilities for st are 210 and 110.

a.
the range of s is 100 while that of p is 80 across the two states. what is the hedge ratio of the put? (negative value should be indicated by a minus sign. round your answer to 2 decimal places.)

hedge ratio
b-1.
form a portfolio of 4 shares of stock and 5 puts. what is the (nonrandom) payoff to this portfolio? (round your answer to 2 decimal places.)

nonrandom payoff $
b-2. what is the present value of the portfolio? (round your answer to 2 decimal places.)
present value $
c.
given that the stock currently is selling at 180, calculate the put value. (round your answer to 2 decimal places.)

put value $
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of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans. 

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.