The following information refers to part A)-E) below, select the right answer from the drop-down menu....
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The following information refers to part A)-E) below, select the right answer from the drop-down menu. Consider a three period binomial time-state model in which there are two securities, a bond and a stock. The bond price increases 2% of its prior value in every period and its initial price is 1. The payments made by the stock are shown in the binomial tree below: 1.00 Stock g 1.2 b 0.9 gg 1.44 gb 1.08 1.08 bg 0.81 bb The Patom vector represents the atomic (time-state) prices of elementary payment for states g. b. gg. gb. bg and bb. respectively, rounded to 4 decimal digits. Patom (0.3922, 0.5882, 0.1538, 0.2307, 0.2307, 0.346) A) The fair price for the European put option with strike price of 1.01. (rounded to 3 decimals) B) An American call option with strike price of 1.08: C) Compute the fair price for the American call option with strike price of 1.08: D) An American put option with strike price of 1.08: E) Compute the fair price for the American put option with strike price of 1.08: + (rounded to 3 decimals) (rounded to 3 decimals) The following information refers to part A)-E) below, select the right answer from the drop-down menu. Consider a three period binomial time-state model in which there are two securities, a bond and a stock. The bond price increases 2% of its prior value in every period and its initial price is 1. The payments made by the stock are shown in the binomial tree below: 1.00 Stock g 1.2 b 0.9 gg 1.44 gb 1.08 1.08 bg 0.81 bb The Patom vector represents the atomic (time-state) prices of elementary payment for states g. b. gg. gb. bg and bb. respectively, rounded to 4 decimal digits. Patom (0.3922, 0.5882, 0.1538, 0.2307, 0.2307, 0.346) A) The fair price for the European put option with strike price of 1.01. (rounded to 3 decimals) B) An American call option with strike price of 1.08: C) Compute the fair price for the American call option with strike price of 1.08: D) An American put option with strike price of 1.08: E) Compute the fair price for the American put option with strike price of 1.08: + (rounded to 3 decimals) (rounded to 3 decimals)
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A An European option can only be exercised at maturity Therefore the only at time period 3 will it b... View the full answer
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