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The risk-free interest rate is 4 per annum with continuous

A stock price is currently $50. Over each of the next two years it is expected to go up by 10% or down by 10%. The risk-free interest rate is 4% per annum with continuous compounding

a What is the price of a 2-year European call option with a strike

b What is the price of a 2year European put option with a strike

c Verify that the European call and European put prices satisfy

d If the put option were American, would it ever be optimal to price of $52. price of $52. put-call parity. exercise it early at any of the nodes of the tree?

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Financial Management: The risk-free interest rate is 4 per annum with continuous

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