A put option grants the owner the right, but not the obligation to sell a stock at

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A put option grants the owner the right, but not the obligation to sell a stock at a predetermined exercise price X. If we assume X = CNY50, then the put option value in one period (p1) is equal to Max(0, CNY50 − S1).

1. Using a one-period binomial tree model with the same prices in one year, initial stock price (S0) of CNY40, and 5 percent discount rate ®, create a riskfree portfolio replicating the put option with 0.75 units of the underlying asset and solve for the put option price (p0).  

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