In addition, you may assume that the annual risk$-$free rate is $5\%.$ In the following steps we will find the value of this option.

Question $1$

What is the value of this option in Year $1($t$=1)$ in the up state $($where the stock price is $$125)?$

Hint: use the replicating portfolio method from lecture.

$[$Please enter your answer in dollars, without the $ sign, with at least two decimals of precision. For example, enter $$1$ as $1\mathrm{.}00.]$

Your Answer:

Question $2$:

What is the value of this option in Year $1($t$=1)$ in the down state $($where the stock price is $$80)?$

Hint: use the replicating portfolio method from lecture.

$[$Please enter your answer in dollars, without the $ sign, with at least two decimals of precision. For example, enter $$1$ as $1\mathrm{.}00.]$

Your Answer:

Question $3$:

What is the value of this option in Year $0?$ Note this option will expire $($pay out$)$ in Year $2.$

Hint: use the answers to the previous two problems.

$[$Please enter your answer in dollars, without the $ sign, with at least two decimals of precision. For example, enter $$1$ as $1\mathrm{.}00.]$

Your Answer: