Problem:
Assume a two-period binomial process in which the current underlying is priced equal to $100. At the end of each period, the underlying can either go up by 25% (u=1.25) or down by 10% (d=0.90). The risk-free rate is 7%. The underlying does not pay dividends or interest.
Required:
Question: What is the American put price (intrinsic value) if the exercise price of the American put is equal to $90?
Note: Provide support for your rationale.