Find the exercise price for the option

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Reference no: EM13280942

A put option is to be sold for 100 shares of a security whose current price is $76.40 per share; it is for exercise in one year. The security's price will change (up or down) by 10% during the year, and the risk-free annual effective interest rate is 5%. The no-arbitrage price of the option is $100. Use risk-neutral probabilities to find the exercise price for the option.

I calculated p* = .75

The answer is $72.96 per share or $7296 for all 100 shares.

Reference no: EM13280942

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