Question: Consider a binomial world in which the current stock price of $59.50 can either go up by 12% or down by 8 % per period.

Consider a binomial world in which the current stock price of $59.50 can either go up by 12% or down by 8 % per period. The risk-free rate is 3 % per period. The stock pays no dividends.

a) What is the 'p' (lower case) parameter in the binomial option pricing model and what is the name and interpretation of this 'p' parameter?

b) What is the fair value of an American-style Put option on this stock with a strike price of $64, based on a 2-period binomial option pricing model with these given parameters the same for each of the two periods?

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