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You are attempting to value a put option with an exercise price of $140 and 1 year to expiration. The underlying stock pays no dividends,
You are attempting to value a put option with an exercise price of $140 and 1 year to expiration. The underlying stock pays no dividends, its current price is $140, and you believe it has a 50% chance of increasing to $200 and a 50% chance of decreasing to $100. The risk-free rate of interest is 15%. |
a. | What will be the payoff to the put, Pu, if the stock goes up? What will be the payoff, Pd, if the stock price falls? |
Stock price rises | |
Stock price falls | |
b. | What is the weighted average value of the pay off? (Round your answer to 3 decimal places.) |
Discounting weighted average |
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