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17.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

A.$1.95

B.$2.00

C.$2.05

D.$2.10

Answer: B

In this case

The tree is

In this case

The tree is

Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015