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:

Z Problem-Solving Model

An approach to problem-solving that integrates both analytical and intuitive strategies, often represented in four stages resembling the letter "Z".

Nonpreferences

The absence of a preference or inclination towards any particular option or choice.

Emotion in Decision Making

The influence that feelings and emotional responses have on the process of making choices or judgments.

Escalation of Commitment

A pattern of behavior in which individuals continue to follow a failing course of action or invest more resources in a losing proposition, based on their hope or belief that the situation will improve.