Q32 . The price of a stock today is $30. After every 6 months, it can either go up by a factor U = 1.25 or go down by a factor D = 0.75. The interest rate is 10% per annum, continuously compounded. Consider an American put with a strike price of $32 and time to maturity of 1 year. Build a two-period binomial tree to find the price of the American put. What is the replicating portfolio today of the American put?

Select one:

a. Short sell 0.4832 shares and invest $15.50

b. Short sell 0.5018 shares and invest $10.50

c. Short sell 0.5962 shares and invest $15.50

d. Short sell 0.5356 shares and invest $20.50

e. Short sell 0.5962 shares and invest $25.00