XBM Inc., stock is expected to go up 11% or down 6% each year during the next two years. The risk-free interest rate is 7% per annum. A two-year at-the-money American put has an exercise price of $72. Assume that n=2.
A) Calculate and show the stock prices in a binomial tree.
B) Calculate p and (1-p) rounding them to two-digit after decimal.
C) Calculate Pu^2, Pud, Pd^2, and Pd and show them in a binomial tree.
D) Calculate current price of the put if
i. Sd (or dS) is $64.28, other things remaining the same.
ii. Sd (or dS) is $70.50, other things remaining the same.