Problem 5: (15 points) The current price of Techsum Co. stock is $100. Below is a blank binomial lattice that you can use to show the possible price paths of TechSIM Co. stock over the next two 6-month periods and to calculate option values. The up and down factors have been calculated to match the volatility of TechsIM Co. stock. If the price rises, it rises by 30% (to 1.3 times its prior value, if it falls, it falls by 23% (to.77 times its prior value). The effective 6-month risk-free rate is .005 (.5%). t=0 t=2 So = 100 Note:t is measured in s-month periods. A. What is the t = 0 value of an American put option written on Tschaum C. stock with a strike price of $1052 show you work on the next page if necessary. You may write on the tree diagram above. (10 points) Put Value = B. What is the initial portfolio att=0 that allows someone to replicate the payoffs on the above put option? Show your work on the next page. You can buy or sell fractions of shares. (5 points) X (i.e., the number of shares of the underlying; x0) at the risk-free rate) = Work for Problem 5A and Problem 5B: 10 Problem 5: (15 points) The current price of Techsum Co. stock is $100. Below is a blank binomial lattice that you can use to show the possible price paths of TechSIM Co. stock over the next two 6-month periods and to calculate option values. The up and down factors have been calculated to match the volatility of TechsIM Co. stock. If the price rises, it rises by 30% (to 1.3 times its prior value, if it falls, it falls by 23% (to.77 times its prior value). The effective 6-month risk-free rate is .005 (.5%). t=0 t=2 So = 100 Note:t is measured in s-month periods. A. What is the t = 0 value of an American put option written on Tschaum C. stock with a strike price of $1052 show you work on the next page if necessary. You may write on the tree diagram above. (10 points) Put Value = B. What is the initial portfolio att=0 that allows someone to replicate the payoffs on the above put option? Show your work on the next page. You can buy or sell fractions of shares. (5 points) X (i.e., the number of shares of the underlying; x0) at the risk-free rate) = Work for Problem 5A and Problem 5B: 10