PLEASE ANSWER DOING A TEST
A stock price is currently $70. Over each of the next two three-month periods it is expected to go up by 6% or down by 5%. The risk-free interest rate is 5% per annum with continuous compounding. You want to determine the value of a six-month European put option with a strike price of $70. Please keep two decimal places
a )What is the stock value at node B? .5689 (sample answer: $55.65)
b )What is the stock value at node D? (sample answer: $55.65)
c)What is the stock value at node E? (sample answer: $55.65)
d)What is the option payoff at node D? (sample answer: $55.65)
e)What is the option payoff at node E? (sample answer: $55.65)
f)What is the option payoff at node F? (sample answer: $55.65)
g)What is the three month risk neutral probability? (sample answer: 55.65%)
h)What is the option value at node B? (sample answer: $55.65)
i)What is the option value at node A? (sample answer: $55.65)