(20 points) The spot price of Microsoft stock (MSFT) is currently $272 per share. In...
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(20 points) The spot price of Microsoft stock (MSFT) is currently $272 per share. In 01 month, MSFT has an equal probability of be- ing one of four prices: $265, $270, $275 and $280; it can be no other price. Assume that the risk-free rate is 5.00% with continuous com- pounding and MSFT does not pay dividend in that 01 month. A portfolio is made of the following: long 100 at-the-money 01 month European call options on MSFT at the price $3.00 per option; short 50 MSFT shares (stocks). (a) (10 points) What is the expected value and the standard devi- ation of MSFT stock price in 01 month? (b) (10 points) What is the probability that the portfolio has profit
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