Assume the following for a European put option that pays dividends. Time to maturity = 6...
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Assume the following for a European put option that pays dividends. Time to maturity = 6 months. Assume that every 3 months, stock can go up by either 10% or come down by 5%. Risk-free rate for 3 months: You can use either continuously compounded =2% or discretely compounded= 2.0201% Current stock price is $60. Exercise price is $59 Price will fall by $2 just prior to the end of the first 3-month period due to dividends. Do the following: a. Draw the stock price tree b. Draw the option payoff tree c. Compute the option price Use 2 decimals everywhere including for proabilitties and stock price. For example, if you compute probability as 0.468, then use 0.47 everywhere Assume the following for a European put option that pays dividends. Time to maturity = 6 months. Assume that every 3 months, stock can go up by either 10% or come down by 5%. Risk-free rate for 3 months: You can use either continuously compounded =2% or discretely compounded= 2.0201% Current stock price is $60. Exercise price is $59 Price will fall by $2 just prior to the end of the first 3-month period due to dividends. Do the following: a. Draw the stock price tree b. Draw the option payoff tree c. Compute the option price Use 2 decimals everywhere including for proabilitties and stock price. For example, if you compute probability as 0.468, then use 0.47 everywhere
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