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You calculated the following values for a two-year at-the-money American put on a stock currently trading at $99: Su = $128.70 Sd = $79.20 Assume

You calculated the following values for a two-year at-the-money American put on a stock currently trading at $99: Su = $128.70 Sd = $79.20

Assume n = 2, the risk-free rate is 9% per annum, and the stock is expected to grow at the same rate for the next two years.

  1. Calculate and show the stock prices after two years in a binomial tree.

  1. Calculate p and (1 - p) rounding them to two-digit after decimal.

  1. Calculate Pu2, Pud, Pd2, Pu, and Pd and show them in a binomial tree.

  1. Calculate current price of the put.

  1. Calculate the hedge ratio initially and subsequently.

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