Question 6:

The current price of a non-dividend paying stock is $20. Use a two-step tree to value a European put option on the stock with a strike price of $22 that expires in 6 months with u = 1.1 and d = 0.9. Each step is 3 months and the risk free rate is 6%.

a.$2.24

b.$2.06

c.$2.64

d.$2.84