Question: Let S = $55, r = 4% (continuously compounded), d = 2%, s = 35%, T = 2. In this situation, the appropriate values of

Let S = $55, r = 4% (continuously compounded), d = 2%, s = 35%, T = 2. In this situation, the appropriate values of u and d are 1.44773 and 0.71892, respectively. Using a 2-step binomial tree, calculate the value of a $60-strike American put option.

ANSWER:

$12.148

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