Question: You are attempting to value a put option with an exercise price of $110 and 1 year to expiration. The underlying stock pays no dividends,

You are attempting to value a put option with an exercise price of $110 and 1 year to expiration. The underlying stock pays no dividends, its current price is $110, and you believe it has a 50% chance of increasing to $120 and a 50% chance of decreasing to $80. The risk-free rate of interest is 12%.

a.

What will be the payoff to the put, Pu, if the stock goes up? What will be the payoff, Pd, if the stock price falls?

Stock price rises
Stock price falls

b. What is the weighted average value of the pay off? (Round your answer to 3 decimal places.)

Discounting weighted average

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