Question: = = 4. Consider a stock with current price So $80. The value of the stock at time t = 1 can take one of

= = 4. Consider a stock with current price So $80.

= = 4. Consider a stock with current price So $80. The value of the stock at time t = 1 can take one of two values: S1,u = $120, S1,d = $50. The price of a risk-free bond that pays out $1 in period t = 1 is $0.95. = (a) Using a one step binomial tree, write down the possible payoffs of a put option on stock S with strike K = $60 and maturity t= 1. (b) What is the price of this put option? HINT: this calculation is very similar to what we did for a call option in the lecture notes. ) (c) What is the price of a call option with strike K = $60 and maturity t = 1? HINT: 1? : you can use put-call parity to find the call price

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