2. The following tree shows a possible underlying stock price movement for the next two years. Each step of the tree is one year. Current stock price is $200 and risk-free rate is 8%. The stock pays no dividend.

1. What is the price of a European put option that has 2 years maturity and $190 strike price?

2. What is the price of an American put option that has 2 years maturity and $190 strike price?

3. Would the Put-Call Parity hold for the American put option in b? Explain why or why not.

$288 $240 | $200 $192 $160 $128 154 year 2nd year