Use risk-neutral probabilities to calculate the value of a


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)

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Financial Management: Use risk-neutral probabilities to calculate the value of a
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