Question: You are attempting to value a put option with an exercise price of $140 and 1 year to expiration. The underlying stock pays no dividends, its current price is $140, and you believe it has a 50% chance of increasing to $200 and a 50% chance of decreasing to $100. The risk-free rate of interest is 15%.
a. What will be the payoff to the put, Pu, if the stock goes up? What will be the payoff, Pd, if the stock price falls?
b. What is the weighted average value of the pay off? (Round your answer to 3 decimal places.)