Question: Let S = $50, r = 4% (continuously compounded), d = 1%, s = 40%, T = 1.5. In this situation, the appropriate values of

Let S = $50, r = 4% (continuously compounded), d = 1%, s = 40%, T = 1.5. In this situation, the appropriate values of u and d are 1.44616 and 0.72332, respectively. Using a 2-step binomial tree, calculate the value of a $55-strike European put option.

ANSWER:

$10.552

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