Imagine all investors are risk-neutral and we have the following binomial tree: 0 Stock: So= 80 D 1 100 72 2 120 90 86.4 64.8 Using the risk-neutral option valuation approach, calculate the price of a two-year put option on this stock with a strike price $92. Assume that the risk-free rate is 3% per year. Also assume the stock does not pay a dividend. Pick the closest number.
Imagine all investors are risk-neutral and we have the following binomial tree: 0 Stock: So= 80 D 1 100 72 2 120 90 86.4 64.8 Using the risk-neutral option valuation approach, calculate the price of a two-year put option on this stock with a strike price $92. Assume that the risk-free rate is 3% per year. Also assume the stock does not pay a dividend. Pick the closest number.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Imagine all investors are risk-neutral and we have the following binomial tree:
0
Stock: So= 80
1
100
72
2
120
90
86.4
64.8
Using the risk-neutral option valuation approach, calculate the price of a two-year
put option on this stock with a strike price $92. Assume that the risk-free rate is 3%
per year. Also assume the stock does not pay a dividend. Pick the closest number.
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