Consider a European put option with an exercise price of $70 on a stock which is selling for $55 today. Assume that there is one period until maturity of the option. Let R=1.05 per period and u=1.3 and d=0.5. The stock does not pay out any dividends during the life of the option.

(a) What is the price today of this put option?

(b)If the strike price was $60 would the put be priced higher or lower? Why? You do not have to calculate the new price to get full credit.

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