What is the option price for non-dividend paying stock

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Problem 1: The current price of a non-dividend-paying stock is $40. Over the next year it is expected to rise to $42 or fall to $37. Assume the risk-free rate is 2% (continuously compounded). An investor buys put options with a strike price of $41. What is the value of each option?

Problem 2: The current price of a non-dividend paying stock is $30. Use a two-step tree to value a European call option on the stock with a strike price of $32 that expires in 6 months. Each step is 3 months, the risk free rate is 8% per annum with continuous compounding. What is the option price when u = 1.1 and d = 0.9?

Reference no: EM132775535

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