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A stock price is $100 now-
In one-month, it can go 5% up or down.
In the second month, it can go 5% up or down.
And in the third month, it can go 5% up or down.
The annual interest rate is 10% with continuous compounding
a) Use RISK-NEUTRAL PROBABILITIES to calculate the value of a three- month AMERICAN put with the strike price 102
b) Calculate the put value at each node of the binomial tree, draw the tree (Show clear steps and formula used)
c) Where should the put be exercised if any? Why?
PLEASE SHOW CLEAR STEPS AND FORMULA USED
Compute the new price of the bond. Use Appendix B and Appendix D for an approximate
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