Suppose that a stock price is currently 70 dollars, and it is known that at the end of each of the next two six-month periods, the price will be either 20 percent higher or 20 percent lower than at the beginning of the period. Find the value of a European put option on the stock that expires a year from now, and has a strike price of 65 dollars. Assume that no arbitrage opportunities exist, and a risk-free interest rate of 7 percent.

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To find the value of a European put option on the stock with the given parameters you can use the bi... View the full answer