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2. A European option has a strike price of $45, the underlying stock price is $45, the option expires in one year. The risk-free rate
2. A European option has a strike price of $45, the underlying stock price is $45, the option expires in one year. The risk-free rate is 3%. | ||||||||||
The stock price, one year from now, can either be $70 or $30. Use a one-step binomial tree and compute the risk-neutral probabilities in order to: | ||||||||||
a. find the value of the option if the option is a Call | ||||||||||
b. find the value of the option if the option is a Put |
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