Use the Information for the Question(s)below

question 9

Essay

Use the information for the question(s)below.
The current price of Kinston Corporation stock is $10.In each of the next two years,this stock price can either go up by $3.00 or go down by $2.00.Kinston stock pays no dividends.The one-year risk-free interest rate is 5% and will remain constant.
-Using risk-neutral probabilities,calculate the price of a two-year put option on Kinston stock with a strike price of $9.

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Definitions:

Jensen's Measure

A performance evaluation measure that calculates the excess return a fund generates over its expected return, given its level of risk.

Risk-Free Return

The theoretical return on an investment with no risk of financial loss, often represented by the yield on government securities such as U.S. Treasury bonds.

Beta

A measure of a security's volatility in relation to the overall market; a beta greater than 1 indicates greater volatility than the market.

Bogey Portfolio

A benchmark portfolio against which the performance of an investment portfolio is measured, often used to assess the skill of portfolio managers.