Assume you have a stock worth 60 that will either going up by 4/3 or down by

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Assume you have a stock worth 60 that will either going up by 4/3 or down by 3/4

a. What are the RNP ( Risk Neutral probabilities of going up and down) if the risk free rate is 0.05?

b. what is the value of a put option with strike price 50?

For question 1 assume that this is an annual movement.

a. Set a two year stock evolution tree

b. What is the value of the put option expiring in two years?

Related Book For answer-question

College Mathematics For Business Economics, Life Sciences, And Social Sciences

ISBN: 978-0134674148

14th Edition

Authors: Raymond Barnett, Michael Ziegler, Karl Byleen, Christopher Stocker

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Posted Date: Apr 25, 2023 11:51 PM

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Assume you have a stock worth 60 that will either going up by 4/3 or down by

Question:

Expert Answer:

a To calculate the Risk Neutral probabilities of going up and down we can use the riskneutral pricing formula Risk Neutral Probability going up eriskf... View the full answer

College Mathematics For Business Economics, Life Sciences, And Social Sciences

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