Question
Question 1 (4 marks) A stock selling at $50 is expected to pay no dividend and has a volatility of 40%. Consider put options with
Question 1 (4 marks)
A stock selling at $50 is expected to pay no dividend and has a volatility of 40%. Consider put options with a 6-month maturity and a $50 strike price. The risk-free rate is 10% per annum continuously compounded. Consider a three-step binomial tree.
(a) Use the binomial tree to price the put option if it is American. (4 marks)
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Intermediate Accounting
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones
10th Edition
324300980, 978-0324300987
