15. Consider a 5-month American put option on a non-dividend paying stock when

the stock price (S) is $50, the strike price (K) is $50, the risk free interest rate is 10%

per annum, and the volatility is 40% per annum. We divide the life of the option into

five intervals of length 1 month. What is p equal to?

a.

0.5057

b.

0.5532

c.

0.6004

d.

0.7137

e.

None of the above.

16. Consider a 5-month American put option on a non-dividend paying stock when

the stock price (S) is $50, the strike price (K) is $50, the risk free interest rate is 10%

per annum, and the volatility is 40% per annum. We divide the life of the option into

five intervals of length 1 month. What is p equal to?

17. Consider a 5-month American put option on a non-dividend paying stock when

the stock price (S) is $50, the strike price (K) is $50, the risk free interest rate is 10%

per annum, and the volatility is 40% per annum. We divide the life of the option into

five intervals of length 1 month.

If we were to draw the ending nodes of the tree what is the greatest value of the option

possible at the ending nodes