Consider a european put option on a currency the exchange, Ask an Expert

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Consider a European put option on a currency. The exchange rate is $1.20 per unit of the foreign currency, the strike price is $1.25, the time to maturity is one year, the domestic risk-free rate is 5% per annum, and the foreign risk-free rate is 2% per annum. The volatility of the exchange rate is 0.25. What is the value of this put option according to a two-step binomial tree? Please provide your answer in the unit of dollar, to the nearest cent.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92101758

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