Question: 3. One-Step Binomial Model Consider a 2-year European put with strike price $100. The current stock price is $100 and the stock price can move

3. One-Step Binomial Model Consider a 2-year European put with strike price $100. The current stock price is $100 and the stock price can move either up or down by 20% once during the life of the option. The risk-free interest rate is 5% per annum. (a) Find the option payoff at each of two stock prices at the expiration. (b) Suppose that we are in time 0. Find the replicating portfolio of the option. (c) What is the current price of the option?

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