36.

The price of a stock today is $30. After every 6 months, it can either go up by a factor U = 1.25 or go down by a factor D = 0.75. The interest rate is 9% per annum, continuously compounded. Consider a European put option with a strike price of $32 and time to maturity of 1 year. Build a two-period binomial tree to find the price of the European put. What is the price of the European put?

a.

$2.36

b.

$2.04

c.

$4.01

d.

$4.28

e.

$3.04