The current price of a non-dividend paying stock is $50. Consider an American put option on the stock with a strike price of $48 that expires in 12 months. In each of the next six month periods, the stock will either increase by 18% or decrease by 16%. The risk free rate is 5%, what is the current value of this option?

The current price of a non-dividend paying stock is $50. Consider an American put option on the stock with a strike price of $48 that expires in 12 months. In each of the next six month periods, the stock will either increase by 18% or decrease by 16%. The risk free rate is 5%, what is the current value of this option?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section20.A: The Black-scholes Option Pricing Model

Problem 1P

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