Question
A stock price is currently at $40. The annualized standard deviation of the stock returns is 13.48%. The risk-free interest rate is 6%. a) Build
A stock price is currently at $40. The annualized standard deviation of the stock returns is 13.48%. The risk-free interest rate is 6%.
a) Build a two-step binomial tree describing the behaviour of the stock price over the next 6 months. (4 marks)
b) Calculate the value of a European put option with a strike price of $45 and time to maturity of 6 months using a two-step binomial model. (4 marks)
c) Calculate the value of an American put option with a strike price of $45 and time to maturity of 6 months using a two-step binomial model. (4 marks)
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Fundamental financial accounting concepts
Authors: Thomas P. Edmonds, Frances M. Mcnair, Philip R. Olds, Edward
8th edition
978-007802536, 9780077648831, 0078025362, 77648838, 978-0078025365
