The share price of BKM is currently at 807 and you are interested in buying the two

month put options on BKM with an exercise price of 800. The volatility of BKM

stock price is estimated at 20%, and the risk-free rate is 5%.

a.

What should be the Black-Scholes price for this put option?

b.

If this option is currently trading at 27.40, compute the implied vol.

c.

When the markets opened today morning, the implied vol corresponding to this

option was at 23%. What was the option price in the morning?

d.

Construct a two period Binomial tree for BKM, which can be later used to

price this option.