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Consider a stock which is currently selling for $50. Construct a two-step binomial tree, 1-month and 2-months respectively for each of the two steps. The stock market volatility is 30%, the rate of interest is assumed to be 5% and the exercise price is $52. (i) Calculate the price of an American Put. (ii) Provide a graphical illustration to demonstrate how the put price and the put payoff change with respect to changes in the stock price.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92781654

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