A stock price is currently $40. Over each of the next two 3-month periods it is expected
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A stock price is currently $40. Over each of the next two 3-month periods it is expected to go up by 10% or down by 10%. The risk-free interest rate is 12% per annum with continuous compounding.
(a) What is the value of a 6-month European put option with a strike price of $42?
(b) What is the value of a 6-month American put option with a strike price of $42?
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