The futures price of a commodity is $45.The volatility of the futures price is 14% andthe continuously compounded risk free rateis 3% for all maturities. An American putoption on the futures contract has strikeprice of $45 and a time to expiration of 6months. Use a two-step tree. Which of thefollowing is closest to the value of theAmerican put ?a. $1.5625 b. $1.5508 c. $0.0

Information Provided: Futures price = $45 Strike price = $45 Volatility = 14% Risk free rate = 3%…

Answered: following American months. Use a…

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following American months. Use a two-step tree. Which of the is closest to the value 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

Section: Chapter Questions

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Question

The futures price of a commodity is $45.
The volatility of the futures price is 14% and
the continuously compounded risk free rate
is 3% for all maturities. An American put
option on the futures contract has strike
price of $45 and a time to expiration of 6
months. Use a two-step tree. Which of the
following is closest to the value of the
American put ?
a. $1.5625 b. $1.5508 c. $0.0

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