Question: Fu We consider a binomial model with T = 3 periods, F = 2, Fd = , p = 0.72, per period, and Xo

Fu We consider a binomial model with T = 3 periods, F

Fu We consider a binomial model with T = 3 periods, F = 2, Fd = , p = 0.72, per period, and Xo = 4 Gils. interest rate r = We look at an American put option with strike K = 4 Gils and maturity T. (a) Compute the initial value of this option. Give your answer with 2 decimal digits (e.g. 3.14). Note: you are not required to work with literal formulas in this question. (b) Suppose that we are in the scenario w = udd. When will an optimally- acting holder of this option exercise it?

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