1. Assume you have a stock worth 60 that will either going up by 4/3

or down by 3/4

a. What are the RNP ( Risk Neutral probabilities of going up and down) if the risk free rate is 0.05?

b. what is the value of a put option with strike price 50?

2. For question 1 assume that this is an annual movement.

a. Set a two year stock evolution tree

b. What is the value of the put option expiring in two years? ( assume risk free is 0.05 and strike is 50)