You are given the following with respect to a public company:

• The common shares of the company were trading at 100 as of December 31, 2015.

• No dividends are paid.

• An industry analyst has projected the possible stock prices over the next two years as a function of the performance of the US economy:

• The effective annual risk-free interest rate that prevails in Year 2016 (i.e., from January 1, 2016 to December 31, 2016) is 5%. 

• The effective annual risk-free interest rate that prevails in Year 2017 is 6% if 2016 has seen an expansion, and 4% if 2016 has seen a recession. 

Using the analyst’s projections, determine the price, as of December 31, 2015, of a two-year European strangle constructed by buying a 100-strike European put option and a 110-strike European call option.

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US Economy 2016 2017 Expansion Expansion Expansion Recession Recession Expansion Recession Recession Share Price of Company December 31, 2016 December 31, 2017 110 110 95 95 120 100 110 90