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3) The volatility of a non-dividend-paying stock whose price is $30, is 14%. The risk-free rate is 3% per annum (continuously compounded) for all maturities.

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3) The volatility of a non-dividend-paying stock whose price is $30, is 14%. The risk-free rate is 3% per annum (continuously compounded) for all maturities. Use a two-step tree to calculate the value of a derivative that pays off [max(Sy 28,0)]2 where S, is the stock price in eight months

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