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Calculate the price of a 6-month american put option

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Question 1: The current price of Rock Pound Corporation stock is $10 and the volatility of the stock price is 20% per year. Rock Pound pays no dividends. The continuous risk-free interest rate is 5% p.a., which will remain constant forever. Construct a two-step binomial tree (estimate u, d and p. keep three decimal places) to describe the price evolvement of the stock and calculate the price of a 6-month American put option on Rock Pound stock with a strike price of $9.9.

Reference no: EM133061099

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