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The current price of Rock Pound Corporation stock is $10 and the volatility of the stock price is 20% per year. Rock Pound pays no
The current price of Rock Pound Corporation stock is $10 and the volatility of the stock price is 20% per year. Rock Pound pays no dividends. The continuous risk-free interest rate is 5% p.a., which will remain constant forever. Construct a two-step binomial tree (estimate u, d and p, keep three decimal places) to describe the price evolvement of the stock and calculate the price of a 6-month American put option on Rock Pound stock with a strike price of $9.9.
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