Eagletron's current stock price is $10. Suppose that over the currentyear, the stock price will either increase
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Question:
Eagletron's current stock price is $10. Suppose that over the currentyear, the stock price will either increase by 96% or decrease by 58%. Also, therisk-free rate is 25 %(EAR).
a. What is the value today of aone-year at-the-money European put option on Eagletronstock?
b. What is the value today of aone-year European put option on Eagletron stock with a strike price of $ 19.60?
c. Suppose the put options in parts (a) and (b) could either be exercisedimmediately, or in one year. What would their values be in thiscase?
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