Consider a one-step binomial tree on the stock with a current price of $70 that can go
Question:
Consider a one-step binomial tree on the stock with a current price of $70 that can go either up to $90 or down to $50 in 1 year. The stock does not pay dividends and interest rates are zero. We want to price the 1-year $60-strike European put option on this tree.
(i) What's the put option payoff 1 year later if the stock price ends up at $90? (integer)
(ii) What's the payoff if the stock price ends at $50? (integer)
(iii) Use the tree to compute the value (integer) and delta (2 decimals) of the put option.
(iv) What's the risk-neutral probability of the stock price going up to the $90 mode of the tree?
(2 decimals) (Write all answers in the exact required decimals.)
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill