Answer to Question #220028 in Finance for Roli favor

Question #220028
Find the current price of a one-year, R110-strike American put option on a non-
dividend-paying stock whose current price is S(0) = 100. Assume that the continuously compounded interest rate equals r = 0.06. Use a two-period Binomial tree with
u = 1.23, and d = 0.86 to calculate the price VP(0) of the put option.
1
Expert's answer
2021-07-27T02:15:01-0400

"P=\\frac{1+r-d}{U-d}\\\\\\frac{1+0.06-0.86}{1.23-0.86}\\\\\\frac{0.2}{0.37}=54\\%"

OP of put today

"\\frac{11.04}{e^{0.06\u00d71}}=10.397\n\\\\=e^{0.06}=1.0618"



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