Prices of a stock are modeled using a two-period binomial


Prices of a stock are modeled using a two-period binomial tree, with each period being six months.

The continuously compounded risk free interest rate is 7 %

The stock pays 2 % continuous dividend.

The current stock price is 65

The volatility of the stock is 40 %.

Consider an American put option on the stock expiring in a year with a strike price of $65.

What is the premium of the option?

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Financial Management: Prices of a stock are modeled using a two-period binomial
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