a. A stock is currently trading at $100; its annual volatility is 0.28, and the risk-free interest rate is 12% per annum with continuous compounding. Answer the questions below using a two-step binomial model where At is equal to three months (show all the details of your calculations and display the results with four decimal places): i. Calculate the values of u, d and p. i. Calculate the price of a 6-month European put option with exercise price of $105 written on this stock. i. Calculate the price of a 6-month American put option with exercise price of $105 written on this stock.

a. A stock is currently trading at $100; its annual volatility is 0.28, and the risk-free interest rate is 12% per annum with continuous compounding. Answer the questions below using a two-step binomial model where At is equal to three months (show all the details of your calculations and display the results with four decimal places): i. Calculate the values of u, d and p. i. Calculate the price of a 6-month European put option with exercise price of $105 written on this stock. i. Calculate the price of a 6-month American put option with exercise price of $105 written on this stock.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 15P

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