Suppose that ABC Ltd. stock is currently trading at $50. In one year’s time, ABC Ltd.’s stock can go up in value to $60 or can go down in value to $30, both these states are equally likely. If the stock is in the up state at the end of period 1, it can go up to $80 or go down to $40 in period 2, while if the stock is in the down state at the end of period 1, it can go up to $40 or fall to $20 in period 2.
Consider the one-year risk free rate as 4%. You are required to set up the excel worksheet for a two-period binomial optional pricing model to estimate the price of a put option with an exercise price of $40.

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Step 11 To set up the Excel worksheet for a twoperiod binomial option pricing model you can follow t... View the full answer