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The current price of a non-dividend paying stock is $50. Use a two-step tree to value...
The current price of a non-dividend paying stock is $50. Use a two-step tree to value a American put option on the stock with a strike price of $50 that expires in 12 months. Each step is 6 months, the risk free rate is 5% per annum, and the volatility is 50%. What is the value of the option according to the two-step binomial model. Please enter your answer rounded to two decimal places (and no dollar sign).
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ANSWER IN THE IMAGE ((YELLOW HIGHLIGHTED). FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.
| Standard deviation | 50.00% | ||||
| Time of each period (months) | 6 | ||||
| u= e^(Standard deviation)*( Time each period/12)0.5 | |||||
| u= | 1.4241 | ||||
| d=1/u= | 0.7022 | ||||
jeff jeffy answered 1 year agoRelated Solutions
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The current price of a non-dividend paying stock is $50. Use a two-step tree to value...
The current price of a non-dividend paying stock is $50. Use a
two-step tree to value a European put option on the stock with a
strike price of $48 that expires in 12 months. Each step is 6
months, the risk free rate is 5% per annum, and the volatility is
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places (and no dollar sign).
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