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Calculate the current value of the option

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Reference no: EM133001726

Consider a 2 year American put option on a non-dividend paying stock. The current stock price is $200, the strike price is $210, the risk free rate of interest is 3% per annum and the stock price is expected to either increase by 6% per annum or decrease by 4% per annum with equal probability.

a. Use a two period binomial model to calculate the current value of the option?

b. Should the option be exercised early? If so, provide full details.

Reference no: EM133001726

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