FordMotor Company (Ticker: F) is currently trading at $9.30 per share and pays no dividends.The volatility of its stock return is 30%. The risk - free rate is 3 %, the European put option strike price is $ 8.50 , and there are 4 binomial period. Assume you are trying to value a 1- year option

1. Find the value of u and d.

2. Draw the binomial tree and compute the intrinsic value of the last column.

3. Find the value of p*.

4. Find the put option values at each node in the binomial tree.

5. What is the Black-Scholes European put option price?

6. What is the delta of the European put option?

7. What is the option elasticity of the European put option? Use the Black-Scholes European put option price computed in Question 5.

13. Suppose Ford stock increases to $10.80 per share. What is new [estimated] European put option price? Use the Black - Scholes European put option price computed in Question 5.

14. Suppose Fords stock price decreases 2%. What is the estimated percent change in the European put option? Use the option elasticity computed in Question 7.