A stock price is $100 now-
In one-month, it can go 5% up or down.
In the second month, it can go 5% up or down.
And in the third month, it can go 5% up or down.
a) Construct a binomial tree for this stock (Show calculation/formula for each step). The annual interest rate is 10% with continuous compounding.
b) Use RISK-NEUTRAL PROBABILITIES to calculate the value of a three- month European put with the strike price 102
c) Calculate the put value at each node of the tree (Show clear steps and formula used)