a. A stock is currently trading at $100; its annual volatility is 0.28, and the risk-free interest rate is 12% per annum with continuous compounding. Answer the questions below using a two-step binomial model where At is equal to three months (show all the details of your calculations and display the results with four decimal places): i. Calculate the values of u, d and p. i. Calculate the price of a 6-month European put option with exercise price of $105 written on this stock. i. Calculate the price of a 6-month American put option with exercise price of $105 written on this stock.

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Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.