The Current Price of a Non-Dividend Paying Stock Is $50

question 19

Multiple Choice

The current price of a non-dividend paying stock is $50.Use a two-step tree to value an American put option on the stock with a strike price of $48 that expires in 12 months.Each step is 6 months,the risk free rate is 5% per annum,and the volatility is 20%.Which of the following is the option price?

• A) $1.95
• B) $2.00
• C) $2.05
• D) $2.10

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