What is the value of the derivative today

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A stock price is currently $25. It is known that at the end of two months it will be either $23 or $27. The risk-free interest rate is 10% per annum with continuous compounding. Consider a derivative that generates a payoff of S^2/100 in two months where S is the stock price at that time. What is the value of the derivative today? (Hint: the stock price movement can be described with a one-step binomial tree)

Reference no: EM131927514

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