Question

In: Accounting

Suppose the exchange rate is $1.95/£. Let r $ = 7%, r £ = 4%, u...

Suppose the exchange rate is $1.95/£. Let r $ = 7%, r £ = 4%, u = 1.14, d = 0.89, and T = 0.5. Using a 2-step binomial tree, calculate the value of a $2.05-strike European put option on the British pound?

Please do NOT answer with Excel.

Answer Choices:

A. $0.1639 B. $0.1775 C. $0.1745 D. $0.1714 E. $0.1810

Solutions

Expert Solution

Suppose the exchange rate is $1.95/£. Let r $ = 7%, r £ = 4%, u = 1.14, d = 0.89, and T = 0.5. Using a 2-step binomial tree, calculate the value of a $2.05-strike European put option on the British pound?


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