1a)

Let S = $50, K = $55, r = 8% (continuously compounded), T = 0.25, and d = 0. Let u = 1.25, d = 0.7, and n = 1. What are D and B for a European put?

Answers:	a. D = 0.5055; B = 48.6981
	b. D = 0.6640; B = 34.3515
	c. D = 0.9695; B = 48.6535
	d. D = 0.7273; B = 44.5545
	e. D = 0.5607; B = 48.2080

1b) Let S = $65, K = $70, r = 3% (continuously compounded), T = 1, and d = 0. Let u = 1.25, d = 0.7, and n = 1. Calculate the value of a European put if D = 0.685315 and B = 54.0362.

Answers:	a. $9.491
	b. $8.257
	c. $7.023
	d. $7.972
	e. $11.768

1c)

Let S = $40, K = $35, r = 7% (continuously compounded), d = 4%, s = 40%, and T = 2. What are the appropriate values of u and d to build a 5-period binomial stock price tree? (Use the formulas from the main part of the chapter and lecture notes, not the alternative formulas in the appendix.)

Answers:	a. u = 1.5537; d = 0.9108
	b. u = 1.1509; d = 0.6546
	c. u = 1.3034; d = 0.7859
	d. u = 1.5836; d = 0.6012
	e. u = 1.0610; d = 0.5556