The current price of a stock is $55. Calculate the value of an American put option on the stock using a two-step binomial tree given the following information. The strike price of the option, K = $57, each time step is one year, the risk-free interest rate, r = 5%, u =1.25, d = 0.8, and p = 0.628

Part 2.

Given that u= e^(T), calculate the implied volatility for the American put option in Part 1.

Part 3.

Calculate the value of a European call option using the Black-Scholes Model. The underlying stock has a cash price of $175, the long-term volatility measured as the stocks standard deviation of returns is 5.5%, the calls strike price is $180, and the risk-free interest rate is 5%. The call option has a maturity of 3 months.

Part 4.

Use the put-call parity to calculate the put option with the same strike price, maturity, and underlaying asset as the call option in Part 3 above.

Part 5.

Explain lower bounds as they relate to this course.

So=55 So=55