Question: Consider a one-period binomial world in which the current stock price of 60 can either go up by 20 percent or down by 16 percent.

Consider a one-period binomial world in which the current stock price of 60 can either go up by 20 percent or down by 16 percent. There is a European put option on this stock with an exercise price of 60 expiring at the end of first period. The risk-free rate is 7 percent.

a. Calculate the stock and put prices for both up and down positions along the tree.

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