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Consider a put option on a stock that currently sells for 100, but may rise to 120 or fall to 80 after 1 year. The

Consider a put option on a stock that currently sells for 100, but may rise to 120 or fall to 80 after 1 year. The risk free rate of return is 10%, and the exercise price is 90.

(b) Calculate the value of the put option by using first principles (No Arbitrage principles). Explain the reasoning behind your calculations. [10 marks]

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