1. 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.

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

3. Calculate P_u², P_ud, P_d², P_u, and P_d and show them in a binomial tree.

4. Calculate current price of the put.

5. Calculate the hedge ratio initially and subsequently.