Q3: Use a two period binomial tree to price a 12 month European style put option on YMMV struck at $16. The spot price of YMMV is $15.25 and it pays no dividends. Assume u/d – 4/3. p.p- 1/3, and r = 9.75%. A) $1.25 B) $0.96 C) $0.72 D) $0.58 E) $1.30

Q3: Use a two period binomial tree to price a 12 month European style put option on YMMV struck at $16. The spot price of YMMV is $15.25 and it pays no dividends. Assume u/d – 4/3. p.p- 1/3, and r = 9.75%. A) $1.25 B) $0.96 C) $0.72 D) $0.58 E) $1.30

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

Problem 1PS

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Please show the steps and calculations

Q3: Use a two period binomial tree to price a 12 month European style put
option on YMMV struck at $16. The spot price of YMMV is $15.25 and it
pays no dividends. Assume u/d =4/3. up= 1/3, andr=9.75%.
A) $1.25
B) $0.96
C) $0.72
D) $0.58
E) $1.30

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Calculation of Up and Down Movement:

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Calculation of Value of European Put Option:

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