The present price of an equity share of Strategy Inc.

is $50. The stock follows a binomial process where each period the stock either goes up 10 percent or down 10 percent. Compute the fair market value of an American put option on Strategy Inc. stock with a strike price of $50 and two periods to expiration.

Assume Strategy Inc. pays no dividends over the next two periods. The risk-free rate is 2 percent per period.

AppendixLO1