What is the risk neutral probability of an up move

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Question

A stock price is currently $50. Over each of the next two three-month periods it is expected to go up by 6% or down by 5%. The risk-free interest rate is 5% per annum with continuous compounding.

Based on the information above what is the risk neutral probability of an up move?

What is the value of a six-month European put option with a strike price of $51? Using a two-step tree diagram show your work in detail.

Reference no: EM133495825

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