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Consider a two-period binomial model in which a non-dividend-paying stock currently trades at a price of $40. The stock price can go up 14 percent or down 11 percent each period. The risk-free rate is 3 percent per period. Calculate the price of a call option expiring in two periods with an exercise price of $40. (Solution: $3.81) Calculate the price of aput option expiring in twoperods with an exercise price of$40.

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Financial Management, Finance

Category:- Financial Management
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